By Stanley White
Dec. 15 (Bloomberg) -- The dollar fell to an eight-week low versus the euro on speculation a U.S. government rescue for the country’s automakers will leave less money to protect the financial system.
The greenback approached the weakest level in 13 years against the yen and declined versus the British pound after U.S. President George W. Bush’s administration said it may use funds originally set aside for banks to prevent General Motors Corp. and Chrysler LLC from “collapsing.” The South Korean won rose on speculation an increase in currency swaps with Japan and China will ease a shortage of foreign exchange.
“There’s no meaningful obstacle to further declines in the dollar against the yen,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan’s largest brokerage. “Diverting government funds intended for the financial sector to carmakers may mean there’s simply less money to go around.”
The dollar fell to $1.3447 per euro as of 11:26 a.m. in Tokyo from $1.3369 on Dec. 12, after touching an eight-week low of $1.3462. The dollar slid to 90.88 yen from 91.21. It dropped to 88.53 yen on Dec. 12, the weakest level since August 1995. Against the British pound, the dollar declined to $1.5009 from $1.4944. The euro rose to 122.22 yen from 121.83. The dollar may fall to 90 per dollar today, Amikura said.
South Korea’s won rose 1.9 percent to 1,346.45 per dollar. South Korea expanded currency swap deals with China and Japan to $28 billion and $20 billion respectively on Dec. 12. The won has fallen 30 percent against the dollar this year, the worst performer among Asian currencies.
Auto Bailout
Bush told reporters today he’s not quite ready to announce his decision on automakers. His administration said on Dec. 12 it will consider using money from its $700 billion bank-bailout fund to provide short-term loans to GM and Chrysler after the U.S. Senate last week rejected a $14 billion bailout for the country’s carmakers. A bankruptcy filing by either company would worsen the longest recession since the early 1980s.
Citigroup Inc., Goldman Sachs Group Inc., BNP Paribas SA and Bank of America Corp. predict further weakness in the dollar after a four-month, 24 percent rally. Last week was the first time in almost a month that consensus estimates for the dollar against the euro through 2009 fell, according to the median forecast of 47 strategists surveyed by Bloomberg News.
The U.S. currency weakened 5.9 percent measured by the trade-weighted Dollar Index from a two-year high on Nov. 21 after strengthening between July and November as investors bought the greenback to flee riskier assets and repay dollar- denominated loans from lenders reining in credit. Since peaking on Nov. 21, the dollar fell against all 16 of the most-widely traded currencies, according to data compiled by Bloomberg.
Debt Sales
U.S. policy makers are flooding the world with an extra $8.5 trillion through 23 different plans designed to bail out the financial system and pump up the economy. The decline shows the increased supply of money may be overwhelming investors just as the government steps up debt sales, the trade and budget deficits grow and de-leveraging by investors slows.
“The dollar will go to new lows as the U.S. attacks its currency,” said John Taylor, chairman of New York-based FX Concepts Inc., which manages about $14.5 billion of currencies.
Futures traders increased their bets that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
Currency Futures
The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop against the dollar -- so-called net longs -- was 43,259 on Dec. 9, compared with net longs of 42,903 a week earlier.
The dollar fell 19 percent against the yen this year, the most since 1987, as almost $990 billion of credit-market losses sparked a seizure in money markets.
The yen advanced 61 percent against the Australian dollar and 80 percent against the South African rand this year on speculation the global recession prompted investors to unwind carry trades, in which they get funds in a country with low borrowing costs and buy higher-yielding assets. Japan’s 0.3 percent target lending rate is the lowest among major economies.
Japan may intervene in the currency market for the first time in five years to slow the yen’s advance against the dollar and other currencies, Nikkei English News reported on Dec. 13, citing finance officials it didn’t identify.
Any move by the government would be unilateral, Nikkei said, citing a senior Finance Ministry official.
Unilateral Intervention
“While intervention is possible, any unilateral action wouldn’t be enough to stop the yen appreciating against the dollar,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second-largest publicly traded lender. “People are more focused on the state of the U.S. economy and monetary policy there.”
The yen may advance to 90 per dollar today, he said.
Japan last intervened on its own when it sold a record 20.4 trillion yen ($224 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar. Central banks intervene when they buy or sell currencies to influence exchange rates.
The yen was little changed after the Bank of Japan said today its Tankan index of business sentiment plunged the most in 34 years. The Tankan index of confidence among large makers of cars and electronics slid to minus 24 from minus 3, the BOJ said. A negative number means pessimists outnumber optimists. Economists expected minus 23, according to a Bloomberg survey.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.
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