By Bo Nielsen
Dec. 11 (Bloomberg) -- The dollar fell against the yen as a bill to prevent the collapse of U.S. automakers met with opposition in the Senate amid concern the global economic slowdown is broadening.
The U.S. currency also weakened to a six-week low versus the euro after a report yesterday showed the U.S. government’s budget deficit for the fiscal year that started in October rose to a record $401.6 billion. The Swiss franc dropped against the euro and the yen after the central bank reduced its interest rate to a four-year low 0.5 percent today.
“From a fundamental basis, there’s a case for avoiding the dollar,” said Adrian Schmidt, a London-based senior foreign- exchange strategist at the Royal Bank of Scotland Plc, the fourth-biggest currency trader. “For the moment the dollar’s on the back foot.”
The U.S. currency weakened to 92.24 yen as of 7:44 a.m. in New York, from 92.76 yesterday. It fell 0.9 percent to $1.3144 after declining to $1.3158, the lowest level since Oct. 30. Schmidt said the euro may rise to $1.36. The euro rose to 121.02 yen from 120.78 yen.
The Swiss franc traded at 1.5649 per euro from 1.5611 and was down 0.3 percent to 77.19 yen. The Swiss National Bank, led by Jean-Pierre Roth, reduced the three-month Libor target by 50 basis points to 0.5 percent today, as predicted by 13 of the 18 economists surveyed by Bloomberg News.
Haven Currency
“Risk aversion is out there even as markets are recovering,” said Geoffrey Yu, a currency strategist in London at UBS AG, the world’s second-largest foreign-currency trader. “The problems with the U.S. automakers make a case for risk aversion. We’re getting close to year-end and liquidity in the markets is thin so we’ll see moves being exaggerated.”
The dollar fell as the MSCI World Index of stocks added to a gain of 6.6 percent this week, reducing the need for investors to buy the U.S. currency as a haven.
“We’ve seen a gradual improvement in financial-market conditions in the last couple of weeks,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi Ltd. in London. “That has put pressure on the dollar.”
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.2 percent at 84.449, below the 55-moving-day average of 84.5, as traders took advantage of the low liquidity to test how far it may fall, Hardman said. They will drive the dollar to $1.345 per euro this year, he said.
Yen Gains
The dollar has gained 11 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to repatriate overseas investments to the U.S. and seek shelter in government debt.
The yen gained versus all 178 currencies tracked by Bloomberg this year as the global recession encouraged Japanese investors to bring funds back home and global equities plunged.
Japan’s currency jumped 21 percent versus the dollar, 34 percent against the euro and 66 percent against Brazil’s real as the financial crisis prompted investors to reverse so-called carry trades, in which they purchase higher-yielding assets funded in countries where borrowing costs are lower.
Japan’s benchmark rate of 0.3 percent is the lowest among major economies.
The dollar fell after Republican Senator George Voinovich said yesterday that legislation to provide $14 billion in federal loans to General Motors Corp. and Chrysler LLC may not have enough votes from his party.
Automaker Bailout
“It will be a rocky ride for this bill to pass but something will come through eventually,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “The dollar will move a bit lower from here but then we’ll see a sharp rebound in January. Deleveraging is still a theme.”
The U.S. budget deficit in November swelled to $164.4 billion, from $98.2 billion in the year-earlier period, as the government used taxpayer money to shore up the financial system by buying stakes in banks, the Treasury Department reported yesterday. Government revenue fell 4.2 percent, while spending soared 24 percent.
The dollar may extend its decline as the U.S. government increases its budget deficit by spending “trillions of dollars” to revive the economy, said Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.
‘Some Risk’
“There’s some risk” for the dollar to weaken, Gross said in an interview on Bloomberg Television yesterday. “It is fair to say other economies are doing much the same thing. The dollar doesn’t have to go south if all the economies reflate at the same time.”
South Korea’s won rose 2.6 percent to 1,358.40 per dollar, after touching 1,330.35, the strongest level in a month. The Bank of Korea lowered its benchmark rate a larger-than-forecast 1 percentage point to 3 percent to prevent the economy from slipping into a recession.
The won, Asia’s worst performer, declined 32 percent against the dollar this year.
Japan will expand its currency-swap agreement with South Korea to help its neighbor obtain foreign exchange, Naoyuki Shinohara, vice finance minister for international affairs, told reporters in Tokyo today. Policy makers are discussing the amount of the swap increase, Japan’s top currency official said.
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.
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