Dollar Heads for Biggest Weekly Decline in 8 Years on Auto Bill

By Stanley White

Dec. 12 (Bloomberg) -- The dollar headed for its biggest weekly decline in eight years against the euro on speculation U.S. lawmakers will delay voting on legislation to lend the country’s automakers enough money to survive into the new year.

The greenback was also set for its sixth weekly decline versus the yen, the longest streak in four years, as Democrats and Republicans opposed to the $14 billion bailout made an alternative proposal, casting doubt on whether the current bill will pass the Senate. The euro rose against the yen this week after European Central Bank council member Axel Weber signaled the bank may be near the end of its rate-cutting cycle.

“There are no incentives to buy the dollar,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. in Tokyo, a unit of Japan’s largest brokerage. “U.S. politicians can’t even agree on stopgap measures for the auto industry.”

The dollar traded at $1.3317 per euro as of 9:28 a.m. in Tokyo from $1.3352 late yesterday in New York, when it reached a seven-week low of $1.3405. It fell 4.5 percent this week. The dollar bought 91.46 yen, little changed from late yesterday and down 1.5 percent from Dec. 5. Against the British pound, the dollar traded at $1.5011 from $1.5036 yesterday and $1.4685 at the end of last week. The euro was quoted at 121.76 yen, on course for a 3.4 percent gain this week. The dollar may fall to $1.38 per euro and 88 yen this month, Amikura said.

Dollar Index

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 1.9 percent yesterday to 83.834. It touched 88.463 on Nov. 21, the highest since April 2006.

The dollar gained 9.6 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage- related securities worldwide led investors to seek funding in the greenback.

Goldman Sachs Group Inc. lowered its forecast for the dollar against the euro and the yen for 2009, saying the repatriation of overseas assets by U.S. investors and demand for the greenback for funding are “diminishing.”

The U.S. currency will weaken to $1.45 per euro and 90 yen, strategists led by Jens Nordvig in New York wrote in a research note yesterday. The firm previously forecast that the dollar would trade at $1.30 and 105 yen by the end of next year.

Automakers

General Motors Corp. and Chrysler LLC are racing against the clock as they need federal aid to keep from running out of cash early next year. Pressure is mounting on GM as a small number of partsmakers ask for payments in advance, people familiar with the matter said.

The Republican’s alternative proposal, offered by Senator Bob Corker, would require automakers’ bondholders to take 30 cents on the dollar and would set wages similar to those paid by foreign companies such as Volkswagen AG.

Some Senate Republicans threatened to block the House Democrats’ plan and a revised Senate version because there’s not enough authority to force automakers to cut costs. The House passed the bill on Dec. 10.

“A package will eventually be put in place and this is unlikely to dampen the current corrective rebound of many currencies against the dollar,” 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. “There remains scope for some further near-term gains for the euro against the dollar.”

The dollar may decline to $1.35 versus the euro and to $1.53 per British pound in coming days, BNP forecast.

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