Dollar Trades Near Record Low Versus Euro Before New Home Sales
By Kosuke Goto
Sept. 27 (Bloomberg) -- The dollar traded near an all-time low against the euro on speculation a U.S. housing report will bolster the Federal Reserve's case for cutting interest rates.
The U.S. currency is headed for its biggest quarterly slump versus the yen since December 2004 as the yield advantage for two-year Treasuries over similar-maturity Japanese debt reached the lowest in almost three weeks. The U.S. dollar has weakened against 13 of the 16 most-active currencies since June 30, falling 4.1 percent versus the euro and 6.3 percent to the yen.
``The dollar remains weak amid concern over the slowdown in the U.S.,'' said Yuji Saito, head of foreign-exchange sales at Societe Generale SA in Tokyo. ``A slowing housing market is an albatross around the U.S. economy's neck.''
Against the euro, the dollar traded at $1.4136 at 12:02 p.m. in Tokyo from $1.4128 in New York yesterday, when it fell to $1.4162, the lowest since the European currency's debut in January 1999. It was the fifth straight trading day the dollar touched a record. The U.S. currency was at 115.51 yen from 115.55.
Saito said the dollar will fall to $1.42 per euro today.
The Commerce Department will report today that new home sales decreased 5.2 percent last month to an annual rate of 825,000, according to a Bloomberg News survey of economists.
Options Barriers
Losses in the dollar may be limited because some investors will buy the currency against the euro to prevent it from triggering so-called option barriers at $1.4200, $1.4225 and $1.4250, said Lee Wai Tuck, currency strategist at Forecast Singapore Ltd. A break will render their option bets worthless.
Europe's single currency may strengthen to $1.4500 by year- end, Lee forecast, citing the prospects of a further narrowing in interest-rate differentials between the U.S. and the 13- nation region in favor of the euro.
Benchmark German two-year bunds yield 10.8 basis points more than similar-maturity Treasuries, the widest margin since September 2004. The extra yield two-year U.S. notes offer over Japanese equivalent debt has narrowed to 3.09 percentage points, the smallest since Sept. 10. The two-year note is typically among the most sensitive to changes in central bank interest rates. A basis point is 0.01 percentage point.
Futures Bets
Futures contracts yesterday showed 86 percent odds the Fed will lower its target overnight lending rate between banks by a quarter-percentage point to 4.50 percent at its next meeting Oct. 31, compared with 72 percent a week ago. The European Central Bank's key rate is 4 percent and the Bank of Japan's is 0.5 percent, the lowest among industrialized countries.
Bank of Japan policy board member Miyako Suda said the economy may overheat if interest rates are raised slowly. She spoke at a financial conference in Tsu, Mie Prefecture, in western Japan today.
Suda and fellow policy makers Atsushi Mizuno and Tadao Noda unsuccessfully proposed doubling the key rate to 0.5 percent in January, a month before the board proceeded with a rate increase.
Investors see a 10 percent chance of a rate increase at a BOJ meeting on Oct. 10-11, up from 9 percent yesterday, according to Credit Suisse Group calculations using overnight index swap rates.
Gains in the yen may be limited by speculation Japanese investors will send money overseas in search of higher yields. Investment trusts are selling more than 1 trillion yen ($8.7 billion) of mutual funds today and tomorrow focused on foreign assets, according to data compiled by Bloomberg.
``Sales of investment trust funds are not so bad,'' said Kei Katayama, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd. in Tokyo. ``This is contributing to the yen's depreciation.''
Japan's currency traded little changed at 163.23 per euro after a 0.6 percent decrease yesterday, when it touched 163.44, the weakest since Aug. 9. The yen may move between 115 and 120 per dollar this year, Katayama said.
One-month dollar-yen implied volatility fell to 9.2 percent, the lowest since Aug. 8. Lower volatility tends to encourage carry trades because it implies smaller swings in exchange rates.
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net
http://www.bloomberg.com/apps/news?pid=20601087&sid=am7gApNOa01w&refer=worldwide
By Kosuke Goto
Sept. 27 (Bloomberg) -- The dollar traded near an all-time low against the euro on speculation a U.S. housing report will bolster the Federal Reserve's case for cutting interest rates.
The U.S. currency is headed for its biggest quarterly slump versus the yen since December 2004 as the yield advantage for two-year Treasuries over similar-maturity Japanese debt reached the lowest in almost three weeks. The U.S. dollar has weakened against 13 of the 16 most-active currencies since June 30, falling 4.1 percent versus the euro and 6.3 percent to the yen.
``The dollar remains weak amid concern over the slowdown in the U.S.,'' said Yuji Saito, head of foreign-exchange sales at Societe Generale SA in Tokyo. ``A slowing housing market is an albatross around the U.S. economy's neck.''
Against the euro, the dollar traded at $1.4136 at 12:02 p.m. in Tokyo from $1.4128 in New York yesterday, when it fell to $1.4162, the lowest since the European currency's debut in January 1999. It was the fifth straight trading day the dollar touched a record. The U.S. currency was at 115.51 yen from 115.55.
Saito said the dollar will fall to $1.42 per euro today.
The Commerce Department will report today that new home sales decreased 5.2 percent last month to an annual rate of 825,000, according to a Bloomberg News survey of economists.
Options Barriers
Losses in the dollar may be limited because some investors will buy the currency against the euro to prevent it from triggering so-called option barriers at $1.4200, $1.4225 and $1.4250, said Lee Wai Tuck, currency strategist at Forecast Singapore Ltd. A break will render their option bets worthless.
Europe's single currency may strengthen to $1.4500 by year- end, Lee forecast, citing the prospects of a further narrowing in interest-rate differentials between the U.S. and the 13- nation region in favor of the euro.
Benchmark German two-year bunds yield 10.8 basis points more than similar-maturity Treasuries, the widest margin since September 2004. The extra yield two-year U.S. notes offer over Japanese equivalent debt has narrowed to 3.09 percentage points, the smallest since Sept. 10. The two-year note is typically among the most sensitive to changes in central bank interest rates. A basis point is 0.01 percentage point.
Futures Bets
Futures contracts yesterday showed 86 percent odds the Fed will lower its target overnight lending rate between banks by a quarter-percentage point to 4.50 percent at its next meeting Oct. 31, compared with 72 percent a week ago. The European Central Bank's key rate is 4 percent and the Bank of Japan's is 0.5 percent, the lowest among industrialized countries.
Bank of Japan policy board member Miyako Suda said the economy may overheat if interest rates are raised slowly. She spoke at a financial conference in Tsu, Mie Prefecture, in western Japan today.
Suda and fellow policy makers Atsushi Mizuno and Tadao Noda unsuccessfully proposed doubling the key rate to 0.5 percent in January, a month before the board proceeded with a rate increase.
Investors see a 10 percent chance of a rate increase at a BOJ meeting on Oct. 10-11, up from 9 percent yesterday, according to Credit Suisse Group calculations using overnight index swap rates.
Gains in the yen may be limited by speculation Japanese investors will send money overseas in search of higher yields. Investment trusts are selling more than 1 trillion yen ($8.7 billion) of mutual funds today and tomorrow focused on foreign assets, according to data compiled by Bloomberg.
``Sales of investment trust funds are not so bad,'' said Kei Katayama, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd. in Tokyo. ``This is contributing to the yen's depreciation.''
Japan's currency traded little changed at 163.23 per euro after a 0.6 percent decrease yesterday, when it touched 163.44, the weakest since Aug. 9. The yen may move between 115 and 120 per dollar this year, Katayama said.
One-month dollar-yen implied volatility fell to 9.2 percent, the lowest since Aug. 8. Lower volatility tends to encourage carry trades because it implies smaller swings in exchange rates.
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net
http://www.bloomberg.com/apps/news?pid=20601087&sid=am7gApNOa01w&refer=worldwide
