Dollar Falls Against Euro Before Fed Meeting, Confidence Data
By Lukanyo Mnyanda and Stanley White
June 24 (Bloomberg) -- The U.S. dollar fell against the euro as the Federal Reserve prepared to start a two-day rate- setting meeting today before a private report that's likely to show consumer confidence fell to a 15-year low this month.
The currency also declined before a separate report that economists say will show house prices in 20 U.S. metropolitan areas plunged in April by the most since records began in 2001. The Fed will probably hold its target rate at 2 percent, interest-rate futures showed. The yen dropped on speculation Japanese investors will use summer bonuses to buy overseas assets offering higher yields than at home.
``Uncertainty about what the Fed's going to say and the weak U.S. data today are likely to keep the dollar on the back foot,'' said Carsten Fritsch, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Yesterday's dollar strength was on the back of weaker euro- area data, and now the focus is back on the U.S.'' The dollar may trade as low as $1.5650 over the next day, Fritsch said.
The U.S. currency fell to $1.5558 per euro as of 9:19 a.m. in London, from $1.5518 yesterday. The yen traded at 107.98 per dollar, from 107.85. The Japanese currency dropped to 168.01 per euro, from 167.35.
The U.S. Conference Board's confidence index declined to 56 in June, the lowest since December 1992, from 57.2 in May, according to a Bloomberg News survey of economists. The research group is scheduled to release the data at 10 a.m. in New York. The S&P/Case-Shiller home-price index fell 16 percent in April from a year earlier, according to a separate survey. The report is due an hour before the confidence survey.
`Peeling Away'
``Weak consumer confidence could ripple through the currency market and keep pressure on the dollar,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``Expectations for a Fed rate increase later this year are slowly peeling away.'' The dollar may fall to 107.60 yen today, he forecast.
All 102 economists surveyed by Bloomberg News predict the Fed will leave rates unchanged tomorrow. The dollar has traded in a range of $1.5303 to $1.5843 per euro since Fed Chairman Ben S. Bernanke said June 9 economic risks have faded.
Traders have since reduced bets on a increased borrowing costs. Futures contracts show a 38.9 percent chance the Fed will raise rates by at least a quarter of percentage point at its meeting in August, down from 68.5 percent odds a week ago. The odds on an increase tomorrow fell to 10 percent, from 26 percent a week ago.
Yen Declines
The yen fell as Japanese finance companies sought to raise more than 1 trillion yen ($9.2 billion) for funds investing abroad by June 30, according to data compiled by Bloomberg.
``Capital outflows should weigh on the yen,'' said Hideo Shimomura, who oversees the equivalent of $4 billion as a chief fund manager at Mitsubishi UFJ Asset Management Co., a unit of Japan's largest publicly traded lender. ``Funds focused on infrastructure of oil-producing and resource-rich nations are doing well.''
Volatility implied by dollar-yen options expiring in one month fell to 10.55 percent from 10.61 percent. Traders quote the measure of expectations for currency swings as part of pricing options. Lower volatility reduces the risk exchange-rate moves will erode the profit from investing overseas.
Against the Australian dollar, the yen traded as low as 103.21, the lowest since Nov. 12, and was at 103.03. It also declined to 212.86 per British pound from 211.97.
Mutual Funds
Employees at private companies may get summer bonuses totaling 14.8 trillion yen this year, down 1.8 percent from a year earlier, according to Kazuyoshi Nakata, an economist in Tokyo at Mitsubishi UFJ Research and Consulting Co., a unit of Japan's largest publicly traded lender by assets. T&D Asset Management Co. will seek to raise 500 billion yen for a fund focused on Chinese environment-related business on June 27. Daiwa Asset Management Co. will seek 20 billion yen for commodity funds. Japan's benchmark rate of 0.5 percent is the lowest among major economies, making assets outside of the country more attractive to domestic investors.
The Australian dollar bought 95.43 U.S. cents, near a two- week high of 95.67 cents, after Rio Tinto Group said China agreed a record price increase for iron ore, Australia's largest export. The South Korean won rose 0.5 percent to 1,033.50 per dollar after Choi Jong Ku, head of the South Korean finance ministry's international finance bureau, said authorities will take ``continuous'' steps to stabilize the currency.
German Consumer Confidence
The dollar has gained 1.7 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers. The greenback is down 7 percent this year.
Any gains in the euro may be limited after a survey showed German consumer confidence declined to a more than two-year low, reducing speculation the European Central Bank will raise borrowing costs.
The Nuremberg-based GfK AG's index for July, based on a survey of about 2,000 people, fell to 3.9, from 4.9 in June. That was lower than the median forecast of 4.6 from 28 economists surveyed by Bloomberg News.
``Economic data point to a slowdown in Europe and make it hard for the ECB to raise rates beyond its July policy meeting,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded financial group. ``The euro may move between $1.53 and $1.58 against the dollar in one month.''
ECB President Jean-Claude Trichet, who is scheduled to speak in Frankfurt today, said June 5 policy makers may increase the 4 percent main refinancing rate by a quarter-percentage point next month. The central bank will make such an increase by the end of September and the Fed will hold its target unchanged, according to the median forecast of economists in Bloomberg News surveys.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net at kgoto2@bloomberg.net
Last Updated: June 24, 2008 04:41 EDT
