Dollar May Extend Drop After Fed Commits Up to $800 Billion PDF Print E-mail
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Monday, 12 April 2004 11:54
Nov. 26 (Bloomberg) -- The dollar may weaken against the euro for a fourth day after the Federal Reserve committed up to $800 billion to thaw the flow of credit. The move by the central bank yesterday encouraged traders to sell the dollar as the Fed may lose money on the debt and asset-backed securities it plans to buy. The dollar reached a 2 1/2-year high against an index of the currencies of six major U.S. trading partners last week as investors sought refuge from deepening credit losses. “We may see the Fed’s balance sheet deteriorate because it’s taking on all these assets,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “This is a latent risk for the dollar that could weaken it over the long term.” The dollar traded at $1.3057 per euro at 8 a.m. in Tokyo from $1.3064 late yesterday, when it lost 0.9 percent and weakened beyond $1.30 for the first time since Nov. 5. The yen traded at 95.34 per dollar following a 2.2 percent gain yesterday. Japan’s currency was at 124.40 per euro following a 1.3 percent increase. The Fed will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a program of $200 billion to support consumer and small-business loans, the Fed said in statements yesterday in Washington. U.S. stocks advanced yesterday on the Fed’s plan, pushing the Standard & Poor’s 500 Index up 0.7 percent. Economic Outlook The Organization for Economic Cooperation and Development cut its forecast for global growth in 2009. The economies of the organization’s 30 members will contract 0.4 percent next year, after expanding 1.4 percent this year. Gross domestic product in the U.S. shrank at a 0.5 percent annual rate from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department in Washington. The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.3 percent to 85 yesterday following a 2.4 percent drop the previous day. The index rose to 88.463 on Nov. 21, the highest level since April 2006. “There are some early signs of stability and normalization starting to come back into the foreign-exchange markets,” said Robert Sinche, New York-based head of global currency strategy at Bank of America Corp., in an interview on Bloomberg Radio. “For us, it means some pretty significant setbacks for the dollar.”
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