By Stanley White
Jan. 14 (Bloomberg) -- The dollar declined from a five-week high against the euro on speculation reports this week will show U.S. retail sales and manufacturing weakened as a recession spread through the world’s largest economy.
The dollar also fell for the first day in four versus the British pound after Federal Reserve Chairman Ben S. Bernanke said fiscal policy alone won’t lead to a lasting economic recovery, signaling the government may need to do more to stimulate growth. The Australian and New Zealand dollars rose from four-week lows and the yen fell on speculation a rebound in Asian stocks will spur demand for high-yielding assets.
“Some traders are reducing their bets that the dollar will gain against the euro,” said Saburo Matsumoto, senior manager of foreign-exchange sales in Tokyo at Sumitomo Trust & Banking Co., Japan’s fifth-largest lender. “America leads the pack when it comes to bad economic news.”
The dollar weakened to $1.3283 per euro as of 7:34 a.m. in London from $1.3182 late yesterday in New York, when it touched $1.3141, the strongest since Dec. 11. The dollar bought 89.71 yen from 89.38 yen. The euro traded at 119.18 yen from 117.81 yen. The British pound rose to $1.4588 from $1.4501. The dollar may fall to $1.35 per euro this week, Matsumoto said.
“Strong measures” are needed to stabilize and strengthen the financial system, Bernanke said in a speech yesterday in London. “More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets,” he said.
Dollar Index
The Dollar Index traded on ICE futures, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and the Swedish krona, fell 0.6 percent to 83.746 from yesterday, when it touched 84.446, the strongest level since Dec. 11.
The index has gained 3 percent this year, after losing 6 percent in December, when the Fed lowered its benchmark interest rates to a range between zero and 0.25 percent, a record low.
U.S. retail sales fell for a sixth month in December, extending the longest run of declines since records began in 1992, according to a Bloomberg News survey. The Commerce Department will release the data at 8:30 a.m. today in Washington. Fed surveys tomorrow from the New York and Philadelphia regions will show manufacturing contracted this month, separate Bloomberg surveys show.
‘Worsen Significantly’
“We expect U.S. retail sales to worsen significantly,” Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. “There’s a high chance that the dollar will face renewed selling pressure versus the yen.”
The Australian dollar advanced to 67.80 U.S. cents from 66.46 cents late yesterday in New York and gained to 60.83 yen from 59.40. The New Zealand dollar rose to 55.72 U.S. cents from 55.34 cents. The kiwi, as the currency is known, also rose to 49.98 yen from 49.46. The MSCI Asia-Pacific Index of regional shares advanced 1 percent, ending a four-day losing streak, as gains in oil prices boosted energy producers.
Benchmark interest rates are 4.25 percent in Australia, 5 percent in New Zealand and 0.1 percent in Japan.
Gains in the euro may be limited as economists forecast a report today will show Europe’s industrial output fell the most since 1993, adding to speculation the European Central Bank will cut interest rates at a meeting tomorrow.
European industrial production declined 6.1 percent in November from a year earlier, according to a Bloomberg survey. The European Union statistics office will release the report at 11 a.m. today in Luxembourg.
ECB Outlook
A Credit Suisse Group AG gauge of probability based on overnight index swaps indicated the ECB will lower its 2.5 percent main rate by at least half a percentage point tomorrow, with 7 percent odds that the cut will be deeper. The median forecast of economists surveyed by Bloomberg is for a 0.5 percentage-point reduction.
The ECB has cut rates by 1.5 percentage points since the beginning of last year, while the Fed slashed its target 4 percentage points. The Bank of England lowered its main rate 4 full percentage points in 12 months, pushing it to 1.5 percent.
“There are a lot of orders to sell the euro,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed bank. “Interest-rate cuts are likely and that is weighing on the euro. There’s not much good economic news coming out of Europe.”
The euro may decline to $1.3100 today, he said.
Technical Analysis
The common European currency may decline to $1.2940 this week according to the analysis of trading patterns, said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo. Support at $1.2940 is near the lower edge of a cloud formation on the euro’s daily ichimoku chart, he said. The width between the currency’s upper and lower Bollinger bands is expanding, showing the euro is likely to fall at the same pace as the lower band, he said.
Europe’s currency lost 5.9 percent against the yen, 5 percent against the dollar and 4.9 percent against the pound this year as reports showed services and manufacturing shrank in December by the most in at least a decade and inflation fell below the ECB’s ceiling of 2 percent for the first time since August 2007.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.
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