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Canadian Broadcasting Co. radio takes note of GATA''s Gold Rush 21 conference
By Joshua Krongold
Bloomberg News Service
Monday, January 31, 2005
http://www.bloomberg.com/apps/news?
pid=10000087&sid=aRC3_VPgxMgI&refer=top_world_news
NEW YORK -- The dollar may fall for the first week in three on
speculation Federal Reserve policy makers will keep a commitment to
raise their benchmark interest rate at a "measured pace," according
to a Bloomberg survey.
Forty-two percent of the 79 traders, strategists and investors polled
from Tokyo to New York on Jan. 28 advised selling the dollar against
the euro this week, compared with a third a week earlier. Forty-seven
percent said the dollar will drop against the yen, and 22 percent
predicted an advance.
The dollar will resume its three-year decline unless Fed policy
makers signal after a meeting on Feb. 2 that they will accelerate the
pace of rate increases, said Anton Pil, global head of fixed income,
currency and commodities at JPMorgan Private Bank. Microsoft Corp.
Chairman Bill Gates and billionaire investor George Soros, at a
meeting of the World Economic Forum in Davos, Switzerland, said they
are counting on a weaker dollar.
"Dollar weakness is here to stay," said Pil, who works in New
York. "The dollar is going to continue to weaken, not just relative
to the euro, but also relative to Asian currencies."
Pil says clients should hold 13 percent to 15 percent of their assets
in currencies other than the dollar, up from between 6 percent and 7
percent two years ago. He expects the dollar to decline to $1.38 per
euro and 95 yen by year-end.
The dollar was little changed last week, trading at $1.3038 per euro
at 5 p.m. in New York on Jan. 28, according to electronic foreign-
exchange trading system EBS. Versus the yen, it appreciated to 0.6
percent to 103.28.
The U.S. currency's rally from a record low of $1.3666 per euro on
Dec. 30 and from the weakest in five years against the yen will be
short-lived, said Gates, the world's richest person.
"I'm short the dollar," Gates said in a Jan. 28 interview with
Charlie Rose at Davos. "The ol' dollar, it's gonna go down." The
dollar is down 51 percent against the euro in the past three years.
Gates said record U.S. trade and budget deficits are undermining the
dollar. The trade shortfall, the measure by which imports exceed
exports, widened to $60.3 billion in November. The fiscal deficit
increased to $427 billion in the year to Sept. 30.
"Obviously the dollar is already undervalued against the euro,"
Soros, chairman of the New York-based Soros Fund Management LLC, said
in an interview in Davos on Jan. 29. "It has every sign of getting
more undervalued."
The dollar's drop may be limited after European Central Bank
President Jean-Claude said the euro's advance is hurting the region's
economy and Chinese officials rebuffed calls from the U.S. and Europe
to let the yuan gain. A stronger yuan would reduce risks to Japan's
exports from an appreciation in the yen.
The ECB has said "the sharp moves upwards of the euro were unwelcome
and that we thought they were counterproductive from the economic
growth perspective," Trichet said in a Davos panel discussion on Jan.
29.
Chinese Vice Premier Huang Ju and Li Ruogu, deputy governor of the
central bank, rejected accusations that China's decade-old peg to the
dollar gives its exports an unfair advantage.
"Please leave it to us," Li said at a separate panel discussion at
Davos, when it was suggested that a stronger yuan would benefit the
Chinese economy. "We are happy and willing to listen, but don't ask
us to practice what you say."
China fixed the yuan to the dollar at a rate of 8.3 in 1995 and has
pledged to make the currency more flexible without being specific or
giving a timetable. Huang said the exchange rate has to be maintained
at "a reasonably stable level."
The Fed will raise its target rate for overnight loans between banks
by a quarter point to 2.5 percent on Feb. 2, the sixth increase since
June, according to the median forecast of economists polled by
Bloomberg. The ECB has kept its benchmark rate at 2 percent since
2003. The Bank of Japan has held borrowing costs near zero since
2001.
Higher rates in the U.S. have attracted investors to Treasury notes.
The difference in yield between the 10-year Treasury note and the
German bund with a similar maturity was 59 basis points on Jan. 28,
compared with no gap in September. The spread has narrowed from 68
basis points on Jan. 10. Foreign investors increased their holdings
of Treasuries to a record in November, according to Treasury
Department figures.
The dollar may surrender its gains this year unless the U.S. yields
increase further, said Ryan Faulkner, a currency strategist at Lehman
Brothers Holdings Inc. in London and a former Fed employee. Lehman
advised clients to end bets on the dollar's decline versus the euro
before the Fed decision and said it may reinstate the bet after the
meeting of policy makers.
"If the dollar is going to continue doing well, it would need the Fed
to really highlight the risk of inflation" and suggest the pace of
rate increases will accelerate, said Derek Halpenny, a currency
strategist at the Bank of Tokyo Mitsubishi Ltd. in London. "We expect
the statement to be similar to what we have had before and will
signal inflationary expectations are well contained."
Bloomberg's weekly currency survey correctly predicted the direction
of the dollar against the euro in 15 of the last 26 weeks. The survey
accurately predicted the direction of the dollar against the yen in
15 of the last 26 weeks as well.
The Fed's statement accompanying its expected rate increase will have
a greater impact on the dollar than a meeting of Group of Seven
finance ministers and central bankers in London on Feb. 4 and Feb. 5,
said Faulkner. Lehman doesn't expect "any big fireworks" from the
gathering, he said. The firm predicts the dollar will weaken to $1.42
per euro and 101 yen in three months.
G-7 officials won't change their policy on currencies, said John
Taylor, U.S. Treasury undersecretary for international affairs.
Hiroshi Watanabe, the official in charge of Japan's currency policy,
told reporters in Tokyo on Jan. 27 that the group's view on exchange
rates "hasn't changed."
At a gathering last February in Boca Raton, Florida, the G-7 said it
discourages excess volatility, disorderly markets, and inflexible
currency policies. "Language that was worked out last year at this
time and was reaffirmed in the meeting since is the way to go,"
Taylor said in an interview at Davos on Jan. 28.
The dollar gained as much as half a cent against the euro after
Taylor's comments as some traders ended bets the G-7 will suggest
they favor a further decline in the dollar, said David Mann, a
currency strategist at Standard Chartered Plc in London. The G-7
comprises the U.S., Japan, Germany, Italy, Canada, France, and the
U.K. Ministers from China and India will also attend.
"People in the market expect no change in the G-7 statement, but they
may also want to reduce positions toward the G-7 to minimize any
risk," said Takashi Yano, a trader at UFJ Bank Ltd. in Tokyo. "That
may put the dollar under some downward pressure toward the event."
Some investors may also be reluctant to buy or sell the dollar
aggressively before the Labor Department's jobs report for January on
Feb. 4, said Minoru Shioiri, senior manager of the treasury and
foreign exchange division at Mitsubishi Securities Co. in Tokyo.
The dollar moved an average of 1.5 cents against the euro on the day
of each U.S. employment report in 2004, according to data compiled by
Bloomberg. Employers probably added 200,000 new workers this month,
up from 157,000 in December, based on the median forecast of 58
economists in a Bloomberg survey.
"There will be little surprise from the FOMC meeting and the G-7,"
said Lionel Kwok, chief investment officer at BOCI-Prudential Asset
Management in Hong Kong. "I still look for another leg of dollar
weakness."
Japanese investors turned more bearish on the dollar for a second
week, according to a survey by the Bank of Tokyo Mitsubishi, a unit
of Japan's second-largest lender.
About a third of 40 Japan-based companies polled were "bearish" on
the dollar compared with the yen, up from 29 percent a week earlier,
the bank wrote in a report published on Jan. 28. The proportion of
clients "bullish" on the dollar fell to about 11 percent from 13
percent the week before. The remaining 55 percent were "neutral."
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----------------------------------------------------
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