The dollar declined to a one-week low against the euro on speculation a Federal Reserve report today will show a contraction in U.S. manufacturing, encouraging the central bank to delay increasing interest rates.
The U.S. currency held near a one-week low versus the Australian and New Zealand dollars on concern credit market losses and record oil prices will prolong a U.S. economic slowdown. The Swiss franc rose to the highest since 1991 against the yen as the central bank will leave interest rate unchanged at a six-year high today, according to a Bloomberg News survey.
``Today's manufacturing data may prompt yet more dollar selling,'' said Michiyoshi Kato, a senior vice president of currency sales at Mizuho Corporate Bank Ltd. in Tokyo, a unit of Japan's second-largest publicly traded financial group. ``With the U.S. economy still slowing, the Fed cannot raise rates this year.''
The dollar fell to $1.5561 per euro as of 1:19 p.m. in Tokyo, compared with $1.5535 in New York yesterday. It reached $1.5579, the lowest level since June 11. The U.S. currency slid to 107.73 yen from 107.88. The euro traded at 167.63 yen from 167.58 yesterday, when it touched 168.04, the highest since July 23.
The U.S. currency may fall to $1.5590 a euro and 107.20 yen today, Kato forecast.
Futures on the Chicago Board of Trade show a 14 percent chance policy makers will increase the 2 percent target rate for overnight lending between banks by a quarter-percentage point on June 25, compared with 16 percent odds a day earlier.
Manufacturing in the Philadelphia area probably contracted for the seventh month in June. The Federal Reserve Bank of Philadelphia's general economic index will be at minus 10, from minus 15.6 in May, according to a Bloomberg News survey.
Asian Currencies
The dollar rose 2.6 percent against the euro last week, the most since 2005, as Fed Chairman Ben S. Bernanke said economic risks have faded, prompting investors to bet the central bank will raise interest rates later this year.
China's yuan rose to 6.8762 per dollar, the strongest since a dollar link was scrapped in 2005, after U.S. Treasury Secretary Henry Paulson urged China to let markets play a bigger role in setting the currency's value. The South Korean won climbed to 1,025.50 per dollar from 1029.10 on speculation the central bank will buy the currency to contain inflation at a seven-year high.
Carry Trades
The yen and the Swiss franc strengthened as Morgan Stanley's earnings dropped 57 percent, renewing concern credit market losses will deepen. A drop in stocks led traders to reduce investments in higher-yielding assets funded in Japan and Switzerland, a practice known as carry trades. In such trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher.
Japan's target lending rate of 0.5 percent and Switzerland's 2.75 percent rate compares with 7.25 percent in Australia and 8.25 percent in New Zealand. European Central Bank President Jean-Claude Trichet said on June 5 that the bank may raise its 4 percent main refinancing rate in July.
The so-called TED spread, the difference between what banks and the U.S. government pay for three-month loans, widened to 0.8874 percentage points, the highest since May 15, indicating finance companies are becoming more reluctant to lend.
``There emerged renewed concern over subprime-related credit losses, weighing on the dollar and pushing up the yen,'' said Yuji Kameoka, a senior economist and currency analyst in Tokyo at Daiwa Institute of Research, a unit of Japan's second- largest brokerage. ``Financial companies will keep writing down more assets until 2010.''
The dollar may fall to 105 yen in two months, he said.
Yen, Swiss Franc
Japan's currency advanced to 102.04 yen per Australian dollar from 102.17 in New York and to 81.71 yen per New Zealand dollar from 81.89, as the MSCI Asia Pacific Index of regional shares declined 1.8 percent. The Swiss franc rose to 104.28 yen, the highest since February 1991, and climbed to 1.0334 per dollar, the strongest since June 12, from 1.0361 yesterday.
The Swiss central bank will leave its main lending rate unchanged at 9:30 a.m. local time as slowing growth limits policy makers' room to combat inflation, according to 16 of 25 forecasts in a Bloomberg News survey. The rest of them expect the central bank to raise borrowing costs.
``We expect the Swiss National Bank will raise rates today,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest in the U.S. ``The nation's inflation rate is very high. The franc will rise to 1.030 against the dollar by the end of September.''
Investors should buy the franc against the dollar as financial market losses boost the currency, according to Morgan Stanley, the second-biggest securities firm by market value.
``Given the overhang of uncertainty and the continued choppiness in global asset markets, we believe there is value in keeping some defensive plays,'' Morgan Stanley strategists Sophia Drossos and Yilin Nie wrote in a research note yesterday. Morgan Stanley bought francs in its model portfolio with a target of 0.9850 and a sell order at 1.05 to limit losses
The U.S. currency held near a one-week low versus the Australian and New Zealand dollars on concern credit market losses and record oil prices will prolong a U.S. economic slowdown. The Swiss franc rose to the highest since 1991 against the yen as the central bank will leave interest rate unchanged at a six-year high today, according to a Bloomberg News survey.
``Today's manufacturing data may prompt yet more dollar selling,'' said Michiyoshi Kato, a senior vice president of currency sales at Mizuho Corporate Bank Ltd. in Tokyo, a unit of Japan's second-largest publicly traded financial group. ``With the U.S. economy still slowing, the Fed cannot raise rates this year.''
The dollar fell to $1.5561 per euro as of 1:19 p.m. in Tokyo, compared with $1.5535 in New York yesterday. It reached $1.5579, the lowest level since June 11. The U.S. currency slid to 107.73 yen from 107.88. The euro traded at 167.63 yen from 167.58 yesterday, when it touched 168.04, the highest since July 23.
The U.S. currency may fall to $1.5590 a euro and 107.20 yen today, Kato forecast.
Futures on the Chicago Board of Trade show a 14 percent chance policy makers will increase the 2 percent target rate for overnight lending between banks by a quarter-percentage point on June 25, compared with 16 percent odds a day earlier.
Manufacturing in the Philadelphia area probably contracted for the seventh month in June. The Federal Reserve Bank of Philadelphia's general economic index will be at minus 10, from minus 15.6 in May, according to a Bloomberg News survey.
Asian Currencies
The dollar rose 2.6 percent against the euro last week, the most since 2005, as Fed Chairman Ben S. Bernanke said economic risks have faded, prompting investors to bet the central bank will raise interest rates later this year.
China's yuan rose to 6.8762 per dollar, the strongest since a dollar link was scrapped in 2005, after U.S. Treasury Secretary Henry Paulson urged China to let markets play a bigger role in setting the currency's value. The South Korean won climbed to 1,025.50 per dollar from 1029.10 on speculation the central bank will buy the currency to contain inflation at a seven-year high.
Carry Trades
The yen and the Swiss franc strengthened as Morgan Stanley's earnings dropped 57 percent, renewing concern credit market losses will deepen. A drop in stocks led traders to reduce investments in higher-yielding assets funded in Japan and Switzerland, a practice known as carry trades. In such trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher.
Japan's target lending rate of 0.5 percent and Switzerland's 2.75 percent rate compares with 7.25 percent in Australia and 8.25 percent in New Zealand. European Central Bank President Jean-Claude Trichet said on June 5 that the bank may raise its 4 percent main refinancing rate in July.
The so-called TED spread, the difference between what banks and the U.S. government pay for three-month loans, widened to 0.8874 percentage points, the highest since May 15, indicating finance companies are becoming more reluctant to lend.
``There emerged renewed concern over subprime-related credit losses, weighing on the dollar and pushing up the yen,'' said Yuji Kameoka, a senior economist and currency analyst in Tokyo at Daiwa Institute of Research, a unit of Japan's second- largest brokerage. ``Financial companies will keep writing down more assets until 2010.''
The dollar may fall to 105 yen in two months, he said.
Yen, Swiss Franc
Japan's currency advanced to 102.04 yen per Australian dollar from 102.17 in New York and to 81.71 yen per New Zealand dollar from 81.89, as the MSCI Asia Pacific Index of regional shares declined 1.8 percent. The Swiss franc rose to 104.28 yen, the highest since February 1991, and climbed to 1.0334 per dollar, the strongest since June 12, from 1.0361 yesterday.
The Swiss central bank will leave its main lending rate unchanged at 9:30 a.m. local time as slowing growth limits policy makers' room to combat inflation, according to 16 of 25 forecasts in a Bloomberg News survey. The rest of them expect the central bank to raise borrowing costs.
``We expect the Swiss National Bank will raise rates today,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest in the U.S. ``The nation's inflation rate is very high. The franc will rise to 1.030 against the dollar by the end of September.''
Investors should buy the franc against the dollar as financial market losses boost the currency, according to Morgan Stanley, the second-biggest securities firm by market value.
``Given the overhang of uncertainty and the continued choppiness in global asset markets, we believe there is value in keeping some defensive plays,'' Morgan Stanley strategists Sophia Drossos and Yilin Nie wrote in a research note yesterday. Morgan Stanley bought francs in its model portfolio with a target of 0.9850 and a sell order at 1.05 to limit losses
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