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Fed Governor Kohn warns on risks from unsustainable asset prices
Vivianne C. Rodrigues
Bloomberg News Service
Wednesday, June 15, 2005
http://www.bloomberg.com/apps/news?
pid=10000087&sid=aJcRmfjRCYRY&refer=top_world_news
The dollar fell for the first day in six against the euro after a
government report showed foreign investors purchased U.S. assets at
a slower-than-expected pace.
International investors bought a net $47.4 billion in Treasury
notes, corporate bonds, stocks, and other financial assets in April,
up from $40.6 billion in the previous month, the Treasury Department
said. Economists expected $70 billion, based on the median forecast
in a Bloomberg survey. The March figure was revised lower from $45.7
billion.
"We may see the dollar rally stall a bit here," said Aziz McMahon, a
currency strategist in New York at ABN Amro Holding NV. "It may
remind the market that even though the U.S. economy is doing better,
we're not seeing huge investment inflows."
The dollar fell to $1.2098 per euro at 10:34 a.m. in New York, from
$1.2031 yesterday, according to currency-dealing system EBS. The
dollar is trading near a nine-month high versus the European
currency. It was at 109.42 yen, from 109.47.
"The market was determined to try to push the dollar through the
$1.20 mark, but we would need strong U.S. data to get us through
those levels," said Michael Malpede, senior foreign exchange analyst
at Refco Group Ltd. in Chicago, with about $50 billion in assets.
The dollar is up 12 percent against the 12-nation currency this
year, its best annual start since the first six months of 1999, when
the euro made its debut. The euro is being buffeted by a recession
in Italy, a decline in German exports and French manufacturing and
concern the rejection of the European Union constitution by French
and Dutch voters will hamper regional economic integration.
A technical gauge of how fast the euro fell during the dollar's five-
day rally through yesterday reached a level that suggested a
possible reversal of its decline.
The euro's 14-day relative strength index against the dollar was
31.18 today after dropping to 23.65 yesterday, the lowest in more
than two years. A level above 70 or below 30 in the index, a gauge
of momentum in a given period, may signal a change of direction.
"Even though we're dollar bulls, the move has come really fast, so
from that perspective it does look like we're really stretched
here," said Naeem Wahid, a currency strategist at HBOS Plc in
London.
The U.S. currency swung by an average three-quarters of a cent
versus the euro on the day of each monthly Treasury report of
foreign purchases of U.S. assets in 2004, according to Bloomberg
calculations.
An index of consumer prices in the U.S. fell 0.1 percent last month,
a separate government report showed earlier. So-called core CPI,
which excludes food and energy prices, gained 0.1 percent.
The euro is down against the dollar this year as the European
Central Bank keeps its benchmark interest rate at a six-decade low
of 2 percent and the U.S. Federal Reserve sticks to its pace of rate
increases. ECB Chief Economist Otmar Issing this week spurred
speculation the European central bank may reduce borrowing costs for
the first time since 2003.
The Fed has increased its target rate for overnight loans between
banks eight times since June last year to 3 percent. Eighty percent
of the 44 participants polled by Bloomberg News on June 10 said to
sell the euro against the dollar, up from 47 percent a week earlier.
Against the dollar, the yen advanced as high as 109.15 earlier
today. Japan's Nikkei 225 Stock Average rose to the highest in two
months. The Nikkei gained 0.7 percent, closing at its highest since
April 14.
The Bank of Japan said in its monthly report today the world's
second-largest economy is continuing to recover amid greater
investment by companies and consumer spending.
"The Nikkei is supporting the yen," said Sabrina Jacobs, a currency
strategist in Singapore at Dresdner Kleinwort Wasserstein. "The
fundamental picture in Japan is much better than that of Europe and
the equity market is holding its own."
The yen may rise to 108.80 per dollar in the next week, Jacobs said.
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