Dollar Trades Near Record Low; American Express Profit Falls

By Stanley White and Kosuke Goto

July 22 (Bloomberg) -- The dollar traded near a record low against the euro after American Express Co. said profits dropped because more consumers defaulted on loans, raising concern the slowdown in U.S. economic growth may deepen.

The currency may extend declines against the yen before reports forecast by economists to show this week that U.S. home sales and durable-goods orders dropped in June. The Australian dollar was close to a 25-year high against the U.S. currency after prices of commodities the nation exports increased.

``Traders will look for opportunities to sell the dollar,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The housing market and corporate earnings show that the U.S. economy's fundamentals are weak.''

The U.S. currency traded at $1.5929 per euro at 10 a.m. in Tokyo from $1.5922 yesterday. It fell to $1.6038 on July 15, the weakest since the European currency's 1999 debut. The dollar was at 106.50 yen from 106.45 yen. The yen was little changed at 169.65 per euro after touching a record low of 169.91 yesterday. The dollar may fall to $1.5950 per euro and 106.10 yen today, Soma forecast.

The Australian dollar was at 97.62 U.S. cents, near a 25- year high of 98.49 cents reached on July 16. Against New Zealand's dollar, it traded little changed at NZ$1.2825 after reaching NZ$1.2851 yesterday, the highest since 2000. Gold, Australia's third most valuable raw material export, rallied as rising energy prices boosted demand for the metal as a hedge against inflation.

American Express

American Express, the biggest U.S. credit-card company by purchases, reported second-quarter profits fell 37 percent on bad consumer loans.

Combined sales of new and existing homes dropped 1.3 percent last month, according to the median estimate of economists surveyed by Bloomberg News. A report from the National Association of Realtors on existing-home sales is due July 24, and new-home sales figures are released from the Commerce Department the next day.

Orders for durable goods probably fell 0.3 percent last month. The Commence Department's report on goods meant to last several years is due July 25.

``We're still a little bit uncertain about the course of the dollar,'' Mike Moran, a senior currency strategist at Standard Chartered in New York, said in an interview with Bloomberg Television. ``It's really a comparison of how weak the U.S. is compared to some of the other currencies like Europe and even Japan that really dictates sentiment.''

Futures traded on the Chicago Board of Trade showed a 7 percent chance the Federal Reserve will increase its 2 percent target rate for overnight lending between banks by a quarter- percentage point at its Aug. 5 meeting, compared with 12 percent odds a week ago.

Pimco on Deficits

The U.S. budget deficit will put pressure on the dollar, according to Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.

``Three years hence, we will see a trillion-dollar deficit to support the U.S. economy,'' said Gross in an interview on Bloomberg Television. ``That's a lot of paper, and that's a lot of compression downward of the value of the U.S. dollar against most other currencies.''

Treasury Secretary Henry Paulson and Philadelphia Fed President Charles Plosser are scheduled to speak on the U.S. economy today. Paulson told CBS News on July 20 the economy is in a ``challenging time'' and probably will experience slow growth for months because of higher oil prices.

Business Confidence

Gains in the euro may be limited by speculation an industry report on July 24 will show German business confidence fell in July as higher oil prices and a stronger currency dimmed the outlook for growth in Europe's largest economy.

The Ifo institute will say its business climate index declined to 100.1 from 101.3 in June, according to the median of 40 forecasts in a Bloomberg News survey. The ZEW Center for European Economic Research in Mannheim said on July 15 its index of German investor confidence fell to a record low.

Bank of America Corp., the second-largest U.S. bank, predicts the European Central Bank will wait until December 2009 before raising rates again, a change from its previous estimate for higher borrowing costs in June 2009. The bank increased its benchmark to 4.25 percent this month.

`Forecast Change'

``Our forecast change came as the ZEW survey slumped to a record low,'' said Tomoko Fujii, head of Japan economics and strategy at Bank of America in Tokyo. ``In such a situation, there would be even some speculation about an ECB rate cut. We are recommending euro-selling against the dollar.''

Europe's single currency may fall to $1.50 against the dollar by year-end, she said.

The euro may surpass the U.S. dollar as the world's dominant currency as soon as the year 2015, said Harvard University professor Jeffrey Frankel, a member of the U.S. panel that determines when economic recessions and expansions begin.

``These things change very slowly so by the standards of international reserve-currency status, that's just a flash of the eye,'' said in an interview with Bloomberg Radio yesterday.

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