Dollar slips to record low against euro
The decline may give the Federal Reserve scope to keep its target interest rate at a four-decade low of 1%, half the rate of the European Central Bank. The Fed said on December 9 it can keep policy accommodative for “a considerable period”.
“People are finding other places in which to invest,” said Tim Mazanec, a currency strategist at Investors Bank & Trust in Boston. “There’s a continued lack of interest in the US dollar.”
The dollar traded at $1.2530 per euro at 10:59am in New York yesterday from $1.2490 late Monday. It fell to a record $1.2536.
Compared with the yen, the US currency was at 106.92, headed for its biggest annual decline since 1998.
Mazanec said the dollar may weaken to at least $1.35 per euro in 2004. Lower rates in the US are discouraging investors from buying debt needed to finance a record federal budget deficit.
The yield on the 1 7/8% Treasury note maturing in December 2005 was 1.83% at 10:17am in New York yesterday. The yield on a German note of similar maturity was 2.46%.
The National Association of Purchasing Management-Chicago said its factory index fell to 59.2 from a nine-year high of 64.1 in November. The Conference Board said optimism among consumers, whose spending accounts for more than half of gross domestic product, fell to 91.3 from 92.5 last month.
The yen headed toward its biggest annual gain versus the dollar since 1998 as Japan’s economy wrapped up a second year of expansion, and international investors pushed the Nikkei 225 Stock Average up 25%.
Against the dollar this year, the yen has climbed 11% even as Japan spent a record 21.1 trillion yen ($200 billion) in an effort to stem the currency’s appreciation. Overseas investors were net buyers of Japanese shares for all but four of the past 36 weeks.
“This is the first year in about a decade that people are optimistic about the Japanese economy,” said Jeremy Fand, senior proprietary trader in New York at WestLB AG. “So many people were underweight in their yen holdings, whether it was stocks or bonds, that they had to play catch-up as optimism improved.”
This year, the dollar has declined less against the yen than the euro as the Bank of Japan, at the behest of the Finance Ministry, sold its currency every month this year except for two, according to government figures.
Currency sales are “going to remain strong,” said Hans Gunter Redeker, a currency strategist at BNP Paribas SA in London.
“They still feel that their economy is dependent on exports and they don’t want to take risks.”
The world’s second-largest economy will grow 1.8% in the 12 months starting April 1, the third year of expansion, as companies increase spending and exports rise, the government said in its annual economic forecast.
Exports and capital spending accounted for all the 0.3% growth last quarter.
Toshiba Corp, the world’s third-largest chipmaker, predicted the yen’s exchange rate would average 115 in the second half of the fiscal year that ends March 31, while Nissan Motor Co forecast a rate of 110.
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