|
Comment on this article |
View comments |
Email this Article
|
|
News :: Political-Economy |
|
Dollar Falls to Record Lows on Fed Warning |
Current rating: 0 |
by Bloomberg via Joe Futrelle
Email: futrelle (nospam) shout.net (verified) |
19 Nov 2004
|
|
|
Dollar Drops After Greenspan Warning on Current-Account Deficit
Nov. 19 (Bloomberg) -- The dollar fell to its lowest in more than four years against the yen and dropped versus the euro after Federal Reserve Chairman Alan Greenspan said foreign investors will tire of financing the record current-account deficit.
``Given the size of the U.S. current-account deficit, a diminished appetite for adding to dollar balances must occur at some point,'' he said at the European Banking Congress in Frankfurt.
Against the yen, the dollar fell to 102.98 at 9:36 a.m. in New York from 104.18 late yesterday, according to electronic currency dealing system EBS. It fell as low as 102.92, the weakest since April 2000. The U.S. currency also declined to $1.3044 per euro from $1.2961. The dollar has dropped to five records against the euro in two weeks.
``This is very dollar negative,'' said Mark Austin, head of currency strategy at HSBC Holdings Plc in London. ``The Fed has concluded that the current-account deficit is unsustainable and it would rather have some controlled dollar depreciation now than a dollar crisis at some point later on.''
The dollar's decline began earlier today on speculation finance ministers and central bankers from the Group of 20 economies, who gather today in Berlin, will fail to agree on the need to halt the U.S. currency's slide. Greenspan will attend the meetings.
``The dollar bears could not have hoped for better comments than this,'' said David Mann, a currency strategist at Standard Chartered Plc in London. ``All the comments are very, very negative especially given that Greenspan had been leaving dollar comments to the U.S. Treasury secretary.''
Widening Shortfall
The shortfall in the current account widened to a record $166.2 billion in the second quarter. The gap is equivalent to 5.7 percent of gross domestic product, up from 5.1 percent in the first quarter, meaning the U.S. economy needs to attract about $1.8 billion a day to maintain the value of the dollar, based on Bloomberg calculations. The current account is a measure of trade, services, tourism and investments.
``International investors will eventually adjust their accumulation of dollar assets or, alternatively, seek higher dollar returns to offset concentration risk, elevating the cost of financing the U.S. current account deficit and rendering it increasingly less tenable,'' Greenspan said.
Greenspan's comments suggest U.S. officials favor a weaker currency, said Michael Woolfolk, a currency strategist in New York at Bank of New York. U.S. Treasury Secretary John Snow said in London on Nov. 17 that agreements to manage currencies are ``at best unrewarding and checkered.''
Rebuffing Europe
Snow's comments have been interpreted by some traders as a rebuff to European complaints about the pace of the dollar's decline. German Economy Minister Wolfgang Clement said in an interview that European Central Bank, U.S. and Asian policy makers should take action.
The G-20 includes the Group of Seven industrialized nations plus the biggest emerging economies.
``I don't think you're going to get a coordinated effort'' to push the dollar higher, said James McCormick, head of currency strategy in London at Lehman Brothers Holdings Inc. ``U.S. policy makers are happy with a weaker dollar as long as it's an orderly move.''
`Big Story'
Lehman, the most accurate forecaster of exchange rates in a Bloomberg survey last quarter, yesterday lowered its predictions for the dollar on expectations record U.S. current-account and budget deficits will diminish demand for the U.S. currency.
``The big story for 2005 is that the dollar downtrend continues,'' said McCormick. The bank cut its three-month dollar forecasts to $1.34 per euro from $1.30 and to 102 yen from 104. ``As we move into the second half of the year the yen really takes on the lead in this dollar down-move.''
Gains in Asian currencies will outpace the euro, which may peak at $1.40 next year, according to Lehman. ``The nascent rally in Asian currencies continues to gain pace as markets recognize the seismic shift in Asian currency policy that is currently under way,'' McCormick wrote in a weekly report.
South Korea's won is heading for the biggest weekly advance against the dollar in six years, having soared 2.9 percent, and yesterday reached its strongest since 1997. The won rose as Finance Minister Lee Hun Jai told reporters in Seoul yesterday the government will be guided by ``the market's supply and demand'' on exchange rates. |
See also:
http://www.bloomberg.com/apps/news?pid=10000103&sid=atiqWlTtP2CI&refer=us
http://money.cnn.com/2004/11/19/news/economy/fed_greenspan/index.htm?cnn=yes
|
Copyright by the author. All rights reserved. |
|
Re: Dollar Falls to Record Lows on Fed Warning |
by Joe Futrelle
futrelle (nospam) shout.net (verified) |
Current rating: 0
19 Nov 2004
|
To summarize: the Fed is recommending that the U.S. depreciate the dollar now so that the pain is spread over a number of years instead of the dollar collapsing all at once.
It's a lose-lose situation. Either way, financing the deficit is going to cut deeper into the GDP, and the weakening dollar will be yet another factor pushing energy prices higher. |
