US dollar predicted to hit new record lows

THE dollar could hit new record lows before the weekend, currency strategists forecast yesterday.

On December 5 the dollar fell to $1.3470 - that level could be breached by Friday.

Investors sold the dollar yesterday fearing a worsening crisis in the trade and current-account deficits in the US.

Rumours of the impending bad news brought the dollar’s three day rally to an abrupt halt.

Even the expectation of an imminent hike in US bank rates was not enough to give the dollar more fizz, analysts said. The dollar renewed its slide against the euro and fell to $1.3272 in early morning trading in New York.

That was from a level of $1.3223 on Friday in late dealings.

It also dropped to 104.92 yen from 105.21. The US currency last week gained 2 cents against the euro and 3 yen against the yen.

In the last quarter alone however, the dollar has dropped 6.4% against the euro and 4.8% versus the yen.

Traders attribute the decline partly to concern that the US will fail to attract enough international investment to compensate for the shortfall in the current account, the broadest measure of trade.

Barclays predicts the dollar will decline to $1.35 per euro and 100 yen in the next three months.

As the current account situation worsens, Barclays is among those including Credit Suisse First Boston, ABN Amro Holding NV and BNP Paribas SA that have cut their dollar forecasts in the past month.

Speculation that government reports this week will show the US trade and current-account deficits widened, are undermining support for the dollar, even as the Federal Reserve is expected to raise interest rates tomorrow for the fifth time this year.

“As long as the deficit remains at record levels and there’s no surprises by the Fed, the dollar will continue its descending path“, a Barclays strategist said.

Niels Christensen, a foreign-exchange strategist in Paris at Societe Generale SA, said “last week’s correction for the dollar after a two- month drop was inevitable, but it definitely won’t last.’ The dollar may weaken to beyond the record low of $1.3470 per euro recorded on 7 December, said Christensen.

The US currency remained lower after a government report showed sales growth at US retailers slowed in November. Sales increased 0.5%, the slowest since August, the Commerce Department said.