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Dollar falls 3 week low versus euro Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000103&refer=us&sid=adiXxYGYOFmwhttp://quote.bloomberg.com/apps/news?pid=10000103&refer=us&sid=adiXxYGYOFmw
Dollar Falls to 3-Week Low Versus Euro; U.S. Trade Gap Widens
Aug. 13 (Bloomberg) -- The dollar dropped to a three-week low against the euro and fell versus the yen after the U.S. said its trade deficit widened to a record in June and exports had the biggest tumble since 2000.
The U.S. currency also weakened against the British pound and Swiss franc after the government said imports exceeded exports by $55.8 billion, surpassing April's record $48.1 billion. A wider gap leaves more dollars in the hands of foreigners, who may invest those funds outside the U.S.
``Anything above a $48 billion dollar deficit would have been bad for the dollar, but this is huge,'' said Marios Maratheftis, a London-based currency strategist at Standard Chartered Plc. ``This is negative for the dollar against sterling and right across the board.''
Against the euro, the U.S. currency declined to $1.2372 at 4 p.m. in New York from $1.2251 yesterday, and reached its weakest since July 20, according to EBS, an electronic currency-dealing system. The dollar fell to 110.67 yen from 110.90.
It had been as strong as $1.2176 per euro and 112.10 on reports showing Japan and the euro-region economies slowed in the second quarter. The dollar is down about 0.8 percent against the euro this week and up 0.2 percent against the yen.
The world economy ``appears to be slowing,'' U.S. Treasury Secretary John Snow said today in a news conference at the Boca Raton, Florida, Chamber of Commerce.
Maratheftis predicted the U.S. currency would drop to $1.29 per euro by year-end. It weakened to $1.8427 per British pound from $1.8224, and to 1.2382 Swiss francs from 1.2563.
Economists expected a trade deficit of $47 billion, according to the median forecast of 65 analysts surveyed by Bloomberg. Slowing growth in Japan and Europe curbed export demand, the report showed.
`Achilles' Heel'
``It confirms that the trade deficit is always going to be the Achilles' heel for the dollar,'' said Shahab Jalinoos, a currency strategist at ABN Amro Holding NV in London.
The dollar rallied earlier in the week after Federal Reserve policy makers on Tuesday raised their benchmark interest rate by a quarter-point to 1.5 percent and said the economy is poised to quicken. Higher rates can help attract investment.
The U.S. currency remained lower after a University of Michigan survey showed consumer confidence fell this month. The university's index dropped to 94 from 96.7 in July.
Imports subtracted 1.33 percentage points from gross domestic product in the second quarter and exports 0.08 percentage point, according to estimates from the Commerce Department. A trade deficit is the amount by which a country's imports exceed its exports, creating a negative balance of trade.
Buffett's Bets
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., has been speculating since 2002 that the dollar will fall because of the widening trade deficit, and raised the company's bet against the dollar by $1 billion last quarter. The dollar has shed about 27 percent against the euro since the start of 2002. Buffett wasn't available for interviews, according to Debbie Bosanek, a Berkshire spokeswoman.
Speculation will increase that ``the whole trade adjustment needs to be forced on the currency,'' said Jason Daw, a currency strategist in New York at Merrill Lynch & Co. A weaker dollar can make U.S. exports more competitive abroad.
``Outsized external deficits could not be sustained indefinitely,'' Fed policy makers said June 30, according to minutes of their meeting released yesterday. While adjustments to the imbalances would likely be ``benign'' when they happen, ``the possibility that the adjustment could involve more wrenching changes could not be ruled out,'' the minutes said.
Japanese Growth
The yen fell earlier today after a government report showed Japan's economy grew in the second quarter by less than half the rate forecast by economists.
The world's second-largest economy expanded an annualized 1.7 percent last quarter. The rate was less than that for the U.S. in the period, and prompted speculation foreign demand for Japanese shares will drop. The Nikkei 225 stock average closed at a three-month low.
``The fear is people will start to reduce their exposure to Japan and that would undermine the yen further,'' said Mark Austin, head of currency strategy at HSBC Holdings Plc in London. ``People have been buying into the Japanese recovery story more and more in the last year and this rather undermines it.''
Mellon Financial Corp. changed its yen forecast after the growth report to 111 per dollar for next month from 106, said Samarjit Shankar, director of global strategy at Mellon's currency group in Boston.
Snow on China
Japan's ``recovery does appear to be faltering a bit, but it's still too early to write it off,'' he said. With consumers and businesses faltering, ``you basically come back to exports as the main driver going forward,'' he said. As a result, Japan may have ``a much lower tolerance level'' for yen strength.
The U.S. deficit with China widened to $14.2 billion from $12.1 billion. China has pegged its currency at about 8.3 yuan per dollar since 1995.
``We've said to them very openly and forcefully, that they need to move to an open, flexible currency system and move off of this peg,'' Snow said. ``They've agreed with us, said they're going to move off of the peg. They can't do it immediately, but they are taking the steps to get there.''
To contact the reporter on this story:
Mark Tannenbaum in New York at at mtannen@bloomberg.net.
To contact the editor responsible for this story:
Dan Moss at dmoss@bloomberg.net.
Last Updated: August 13, 2004 16:05 EDT
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