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OPEC will stick with dollar, its president says
Bank of Japan Loves to Schedule
Intervention Over U.S. Holidays
By Mark Tannenbaum and Joshua Krongold
Bloomberg News Service
Wednesday, November 24, 2004
http://quote.bloomberg.com/apps/news?
pid=10000006&sid=aUTL2xt2HC3M&refer=home
The dollar declined to a record against the euro for
the seventh time this month amid speculation the
European Central Bank will refrain from attempting
to stem the 12-nation currency's appreciation.
ECB officials haven't protested the dollar's decline
since Nov. 19, a period in which the dollar extended
its drop versus the euro by almost 2 cents. Exports,
which account for about a quarter of the euro
region's economy, would be "crushed" should the
euro advance beyond $1.35, according to Paresh
Upadhyaya at Putnam Investments in Boston.
The central bank "has been notably silent so far,"
said Upadhyaya, a currency portfolio manager who
helps oversee $29 billion. "Outright intervention is
not likely at this point."
Against the euro, the dollar fell to $1.3175 at 12:22
p.m. in New York from $1.3086 late yesterday,
according to EBS, an electronic currency-dealing
system. The dollar earlier touched a record low
$1.3180. It dropped to 102.88 yen, from 103.31,
after earlier weakening to 102.56, the lowest since
March 2000.
The dollar has lost about 32 percent against the euro
since the start of 2002. The U.S. currency is also
down today against the British pound, Swiss franc,
and the dollars of Canada and Australia. Merrill
Lynch & Co. today cut its dollar forecasts.
The yen reached the strongest in 4 1/2 years after
Tsutomu Takebe, secretary-general of Japan's ruling
Liberal Democratic Party, told a Tokyo press dinner
that the yen isn't at a level that merits a policy change.
Japan sold a record 32.9 trillion yen ($320 billion) in
the year through March, and hasn't sold since,
according to finance ministry data through October.
Europe's common currency has gained 1 percent since
Nov. 19, when ECB President Jean-Claude Trichet
said he will stick to his view that the euro's moves
are "brutal" and "not welcome."
ECB policy makers may refrain from selling the euro
to halt gains unless it rises to $1.35 "in the next few
weeks," said Kristjan Kasikov, a currency strategist
in London at Calyon, the investment-banking unit of
Credit Agricole SA. "At the moment they might still
be hoping that this is a temporary speculative move."
Merrill today cut its dollar prediction to $1.39 per euro
for the end of March, from $1.33 before, and to 96 yen
from a previous forecast of 100 yen in the same period.
The ECB is "handcuffed," said Jason Daw, senior c
urrency strategist in New York at Merrill, the world's
biggest securities firm. "In one sense, they say they're
uncomfortable with the euro's strength, but on the other
hand they say they are vigilant on inflation. That is a
policy inconsistency, and the market is not going to
take their verbal intervention seriously."
At a Tokyo press briefing, Kaoru Yosano, the LDP's
head of policy, also said today "the effect of
intervention is extremely short-lived and limited."
Japan may not act to halt the yen's advance until it rises
nearer to 100 per dollar, said Neil Mellor, a currency
strategist in London at Bank of New York. There's
no point swimming against the tide at the moment
because they would get washed away." The yen may
reach 100 by year-end, he said.
Hiroshi Watanabe, Japan's vice-finance minister for
international affairs, told reporters in Berlin on Nov.
20 that the yen's gain "was too rapid" and that "Japan
will take decisive action if necessary.' The ministry
directs the central bank to buy or sell the currency.
The euro rose even as German Chancellor Gerhard
Schroeder said he was concerned about the currency's
gains. He spoke before parliament today in Berlin.
A stronger euro also has benefits in that it can suppress
inflation and reduce the cost of crude oil, which is sold
in dollars.
"The Europeans and the Japanese are in a box because
the U.S. doesn't really seem to be too concerned," said
Michael Malpede, senior currency analyst in Chicago at
Refco Group Ltd. "Some dollar weakness is good for
everybody right now."
Strategists including Todd Elmer at Barclays Capital
Inc. in New York said tomorrow's Thanksgiving Day
holiday in the U.S. may be an opportunity for Japan
to make a larger impact with yen sales, as currency
trading will be below the typical $1.9 trillion per day.
There are precedents for Japan selling yen on U.S.
public holidays. Finance Ministry data show the Bank
of Japan sold yen for dollars on Feb. 16, when U.S.
financial markets were shut for Presidents' Day. Last
year Japan also sold yen on Jan. 20, when U.S. markets
were closed for Martin Luther King Day.
Federal Reserve Chairman Alan Greenspan said on
Nov. 19 at the European Banking Congress in Frankfurt
that overseas investors may tire of financing the U.S.
current-account gap and diversify into assets
denominated in other currencies. "A diminished appetite
for adding to dollar balances must occur at some point,"
he said.
European officials' remarks are "completely pushed aside
when Greenspan speaks and alerts the market, saying the
dollar's going down lads, so let's forget about it," said
Adrian Hughes, a currency strategist at HSBC Holdings
Plc in London, who bought the euro two days ago in a
portfolio his team manages. He expects it to gain to
$1.3350 by Christmas.
The Dollar Index, which measures the dollar against a
basket of six currencies, fell to 82.37 today, the lowest
since August 1995, according to data compiled by
Bloomberg. The New York Board of Trade index
averages exchange rates between the dollar and six
other currencies, with the euro accounting for 58
percent.
The index's 1995 low was 80.05, the weakest for the
dollar since 1992.
The dollar extended losses after a University of
Michigan survey showed consumer confidence was
lower this month than earlier estimated. The university's
sentiment index was 92.8, compared with a reading of
95.5 reported Nov. 12, though still up from 91.7 in
October.
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