Dollar Falls Against Yen, Euro Before Housing, Inflation Data

By Kosuke Goto and Stanley White

Aug. 18 (Bloomberg) -- The dollar fell against the yen, snapping a three-day advance, before U.S. government housing and inflation reports this week that may add to speculation the Federal Reserve will delay increasing interest rates.

The currency also retreated from the strongest level in almost six months versus the euro after the Wall Street Journal reported the Organization of Petroleum Exporting Countries may cut crude oil production next month. The British pound declined against the euro as an industry report showed U.K. house prices posted the biggest annual decline in August since at least 2002.

``The U.S. economy will remain sluggish in the coming two years,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion. ``OPEC's only choice is to try to maintain higher oil prices. This will weigh on the U.S. economy and the dollar.''

The dollar slid to 110.34 yen as of 10:17 a.m. in Tokyo from 110.53 yen in New York on Aug. 15, when it reached 110.66, the strongest since Jan. 2. The U.S. currency weakened to $1.4722 per euro from $1.4687 on Aug. 15. It earlier touched $1.4647, the highest since Feb. 20. The euro traded at 162.36 yen from 162.30.

The pound slid to 78.78 pence per euro, from 78.69 pence late last week, after Rightmove Plc said the average asking price for a home fell 4.8 percent from a year earlier.

U.S. Housing Starts

U.S. housing starts probably dropped 9.9 percent to an annual rate of 960,000 in July, the fewest in 17 years, according to a Bloomberg News survey ahead of the Commerce Department report tomorrow. The Labor Department will tomorrow report the producer price index climbed 0.5 percent in July after jumping 1.8 percent in June, a separate survey showed.

The dollar weakened after the Wall Street Journal reported OPEC may decide to roll over or cut crude oil production when the group meets in early September in Vienna, citing Iran's OPEC governor Mohammad Ali Khatibi.

Fed funds futures on the Chicago Board of Trade show a 14 percent chance the U.S. central bank will increase the 2 percent overnight lending rate between banks by a quarter-percentage point at its September meeting, down from an 18 percent chance a week earlier.

Future Traders

Futures traders are betting for the first time since March 2007 that the dollar will advance against the euro, yen and British pound.

The difference in the number of wagers by hedge funds and other large speculators on a gain in the dollar compared with those on a decline, known as net longs, was 24,060 on Aug. 12, compared with net shorts of 20,886 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed on Aug. 15.

JPMorgan Chase & Co., the third-largest U.S. bank, raised its forecasts for the dollar against the euro, the pound and the Australian dollar.

The dollar may trade at $1.47 per euro by year-end, compared with a previous forecast of $1.50, Tohru Sasaki, chief currency strategist at JPMorgan in Tokyo, wrote in a research note today. The currency will trade at $1.84 per pound and 84 cents against the Australian dollar by Dec. 31, versus earlier forecasts of $1.85 and 93 cents, respectively, he wrote.

``This is the unwinding of short-dollar positions,'' Sasaki said, confirming the report. Short positions are bets that a currency will decline.

German Confidence

Gains in the euro may be limited by speculation that investor confidence in Germany remained near a record low, discouraging the European Central Bank from raising rates.

The ZEW Center for European Economic Research's index of investor and analyst expectations, due tomorrow in Mannheim, was minus 62 in August, according to a Bloomberg News survey. That's near minus the 63.9 of the previous month, the weakest since the ZEW began compiling the data in December 1991.

``I expect the euro to decline further based on a deteriorating economic outlook,'' said Katsunori Kitakura, chief treasury dealer in Tokyo at Chuo Mitsui Trust & Banking Co., Japan's seventh-largest publicly listed lender. ``It's clear that the focus is shifting to growth from inflation.''

The euro may fall to $1.45 in the next two weeks, he said.

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