Dollar Falls on Speculation Consumer Spending, Incomes Slumped

By Stanley White
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Aug. 29 (Bloomberg) -- The dollar fell against the yen, heading for a second weekly decline, on speculation government reports will show consumer spending slumped as home prices fell and fuel costs increased.

The greenback also weakened against the euro as oil prices climbed, threatening to curb growth in the world's largest energy consumer. The British pound traded near a record low against the euro as a central bank policy maker said lower interest rates are needed to prevent a housing slump from pushing the economy into a recession.

``The dollar has a weak bias,'' said Osao Iizuka, head of foreign exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``The unhealthy state of the U.S. economy is dictating the tempo for the dollar. A rise in oil prices is also a negative factor for growth.''

The U.S. currency declined to 108.97 yen at 10:55 a.m. in Tokyo, compared with 109.50 late yesterday in New York and 110.07 on Aug. 22. The dollar fell to $1.4734 per euro, compared with $1.4706 late yesterday. The euro was at 160.74 yen from 161.04 yesterday. The dollar may fall to $1.4780 per euro today, Iizuka forecast.

The pound headed for a 2.2 percent monthly decline versus the euro, the largest since March, after Bank of England policy maker David Blanchflower said rates need to decline. Sterling was at 80.41 pence per euro after touching 80.61 pence yesterday, the weakest since April 17. It reached a record low of 80.99 pence on April 16.

South Korea's currency today fell 0.6 percent to 1,088.50 per dollar. It is set for the biggest monthly decline since August 1998 as overseas fund managers dumped local stocks and refiners paid bills for imports.

U.S. Economy

U.S. personal income declined 0.2 percent in July following a 0.1 percent gain in June, according to a Bloomberg News survey of economists. Personal spending increased 0.2 percent after climbing 0.6 percent, a separate survey showed. The Commerce Department will release the data at 8:30 a.m. in Washington.

The euro is down 5.8 percent against the dollar this month, heading for its biggest decline since the single currency's 1999 debut, as a slump in German business confidence to a three-year low added to concern European economies may fall into a recession.

``On a short-term basis, we do think the dollar probably has overstretched itself,'' said Mike Moran, senior currency strategist at Standard Chartered Bank in New York, in an interview on Bloomberg Television. ``There's scope for a pullback.''

Crude Oil

Crude oil for October delivery rose $1.12 to $116.72 a barrel as a tropical storm threatening U.S. oil rigs in the Gulf of Mexico may strengthen into a hurricane. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

U.S. Gross domestic product rose 3.3 percent on an annual basis in April through June, the Commerce Department reported yesterday, exceeding the previous estimate of 1.9 percent. The economy grew at a 0.9 percent pace in the first quarter.

The dollar has gained 8 percent from a record low of $1.6038 per euro set on July 15 as the European economy shrank in the second quarter and crude oil declined 20 percent from the all-time high reached last month.

The yen was little changed after the Japanese government said consumer prices excluding fresh food rose 2.4 percent in July from a year earlier, faster than economists' estimates for a 2.3 percent rise. A separate report showed industrial production rose 0.9 percent last month, counter to economists' expectations for a decline.

Bad to Worse

The pound last stood at $1.8289, on course for a 7.8 percent decline this month, the largest since October 1992. The average value of a home in the U.K. fell 10.5 percent in August, the biggest drop since the final quarter of 1990, Nationwide Building Society said yesterday.

The implied yield on the March short-sterling futures contract is down 26 basis points to 5.24 percent from 5.5 percent at the start of the month. The BOE's benchmark rate is 5 percent.

``The news for sterling has gone from bad to worse,'' analysts led by Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France's biggest bank, wrote in a research note yesterday. ``Moreover, BOE member Blanchflower delivered dovish comments.''

Investors should sell the pound with a target of $1.82, according to the report.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net