Dollar Is Little Changed Before Confidence Data, Fed Meeting

By Stanley White and Kosuke Goto

June 24 (Bloomberg) -- The dollar was little changed against the euro before an industry survey that may show consumer confidence in the U.S. slumped to the lowest since 1992 as a housing recession weighs on the economy.

Federal Reserve policy makers start a two-day meeting later today at which they will probably keep the benchmark interest rate on hold at 2 percent. The yen may weaken on speculation Japanese individuals due to receive summer bonuses in June will plow cash into investment trusts targeting higher yields overseas.

``Weak consumer confidence could ripple through the currency market and keep pressure on the dollar,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``Expectations for a Fed rate increase later this year are slowly peeling away.''

The dollar traded at $1.5507 against the euro at 10:52 a.m. in Tokyo, little changed from last yesterday. It touched an all- time low of $1.6019 on April 22. The greenback held at 107.99 yen while the euro bought 167.47 yen from 167.35. The dollar may fall to 107.60 yen today, Amikura forecast.


The Australian dollar bought 95.02 U.S. cents, near a two- week high of 95.67 cents, after Rio Tinto Group said China had agreed to pay a record price increase for iron ore, Australia's largest export. The South Korean won rose to 1,037.65 per dollar from 1,039.15, snapping two days of losses, on speculation South Korean officials will buy the currency to lower import prices.

Fund Raising

Japanese asset management companies and banks will market more than 1 trillion yen ($9.2 billion) of funds focused on foreign securities by the end of the month, according to data compiled by Bloomberg. T&D Asset Management Co. will seek to raise 500 billion yen for a fund focused on Chinese environment- related business on June 27. Daiwa Asset Management Co. will seek 20 billion yen for commodity funds.

``Sales of investment trusts are not so bad,'' said Kei Katayama, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd. in Tokyo. ``This is supportive for foreign currencies against the yen.''

Japan's currency may weaken to 110 per dollar in a month, Katayama said.

U.S. Economy

The Conference Board's confidence index declined to 56 in June, the lowest since December 1992, from 57.2 in May, according to a Bloomberg News survey of economists. The research group will release the data at 10 a.m. in New York. The S&P/Case-Shiller home-price index fell 16 percent in April from a year earlier, according to a separate survey. The report is due an hour before the confidence survey.

All of the 102 economists surveyed by Bloomberg News predict the central bank will leave rates unchanged tomorrow. The dollar has traded in a range of $1.5303 to $1.5843 per euro since Fed Chairman Ben S. Bernanke said on June 9 that economic risk has faded, prompting investors to bet the central bank will increase the target lending rate later this year after seven reductions beginning in September.

Traders have since reduced bets on a rate increase. Futures contracts show a 38.9 percent chance the Fed will raise rates by at least a quarter of percent at its meeting in August, down from 68.5 percent odds a week ago.

Slowdown in Europe

Any gains in the euro may be limited before a survey forecast by economists to show German consumer confidence will fall in July, reducing speculation the European Central Bank will increase borrowing costs.

The dollar has gained 1.7 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers. The greenback is down 7 percent this year.

``Economic data point to a slowdown in Europe and make it hard for the ECB to raise rates beyond its July policy meeting,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded financial group. ``The euro may move between $1.53 and $1.58 against the dollar in one month.''

The Nuremberg-based GfK AG's index for July, based on a survey of about 2,000 people, will probably fall to 4.6, from 4.9 in June, according to the median forecast of 28 economists surveyed by Bloomberg News.

ECB Rates

Investors reduced bets yesterday on rate increases by the ECB, futures contracts showed. The implied yield on the March Euribor futures contract dropped 2 basis points, or 0.02 percentage point, to 5.31 percent. The contract has gained 55 basis points in the past month.

ECB President Jean-Claude Trichet speaks later today. He said on June 5 that the bank may increase the 4 percent main refinancing rate by a quarter-percentage point next month. The central bank will make such an increase by the end of September, while the Fed will hold its target unchanged, according to the median forecast of economists in Bloomberg News surveys.

``There's still an expectation that the ECB will tighten quicker than the Fed,'' said Alan Ruskin, head of international currency strategy, at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``But if they're tightening into weakening data,'' the ECB may be more cautious.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net