Oct. 25 (Bloomberg) — The dollar fell against the euro for the ninth straight day, the longest losing streak since January 2003, on concern record oil prices will slow U.S. growth.
The currency is less than 1 percent away from its record low of $1.2930 per euro as traders expect further evidence U.S. economic growth is faltering. Reports this week may show consumer confidence and business activity in the Chicago region fell this month, according to Bloomberg surveys.
“Just about everything that could be going wrong for the dollar is going wrong,” said Steven Englander, a currency strategist in New York at Barclays Capital Inc. Given record oil prices, declines in stocks and low Treasury bond yields, “it doesn’t make U.S. assets as a group too attractive to foreigners.”
The dollar fell to $1.2778 per euro at 9:55 a.m. in New York from $1.2682 late Friday in New York, according to electronic foreign-exchange trading system EBS. The dollar also fell to an eight-year low of 1.1987 against the Swiss franc.
Against the euro, the U.S. currency traded as low as $1.2808, the weakest since its record low on Feb. 18. Versus the yen, the dollar dropped to 106.71, from 107.26.
The euro’s gain helps counter the impact of oil on Europe’s growth, European finance ministers and central bank officials signaled in the past week.
“There’s very little on the horizon to stop the slide in the dollar unless we get a significant turnaround in energy markets,” said Hans Guenter Redeker, head of currency strategy at BNP Paribas SA in London. “People are getting more concerned about the impact of high energy prices” on U.S. growth.
The advance in Europe’s common currency “has been some sort of protection” against oil costs, said European Commission President Romano Prodi in an interview in Brussels. His remarks echoed comments by European Central Bank council members Jose Manuel Gonzalez-Paramo and Vitor Constancio on Oct. 22.
“The next level that everyone is looking at is $1.2930,” said Paul Mackel, a currency strategist in London at ABN Amro Holding NV, which said Oct. 21 it may cut its dollar forecast. “You could have the situation where speculators take profits but the euro keeps rising.”
“There are a number of market participants who may have missed” placing bets on last week’s decline in the dollar, and are opening new wagers on a further drop, said Mackel.
Futures traders’ bets on the euro to advance against the dollar last week exceeded the average for the past six months. The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop — so-called net longs — was 36,512 on Oct. 19, the Commodity Futures Trading Commission said on Oct. 22. The six- month average is 22,203.
The dollar has tended to decline versus the euro when oil advances, according to data compiled by Bloomberg. In the past three months, the correlation between oil and the dollar is minus 0.82, measuring the coincidence of closing gains and declines on a scale of -1, meaning prices move opposite each other, to 1, meaning they move in lockstep.
Europe’s common currency stayed higher after Germany’s Ifo institute confidence index unexpectedly gained in October. The index rose to 95.3 from 95.2 in September, against an expected drop to 94.8 in a Bloomberg survey of economists.
December crude rose as much as 50 cents to a record $55.67 in electronic trading on the New York Mercantile Exchange. Prices rose 85 percent in the past year.
“Sentiment for the dollar is just bad,” said Osamu Takashima, chief analyst of the currency and treasury division in Tokyo at Bank of Tokyo-Mitsubishi Ltd., a unit of Japan’s second- biggest lender. “Speculation that a rising oil price will hurt the economy and that capital inflows to the U.S. will slow are hurting the dollar.”
Foreigners bought a net $59 billion of Treasuries, stocks, and other securities in August, the least in 10 months, Treasury said Oct. 18.
At 3.95 percent, U.S. 10-year Treasury yields were 0.12 percentage point above those on German government debt of the same maturity, down from an average 0.24 point gap the past six months.
Sixty-three percent of the investors, analysts and traders polled Oct. 22 from Tokyo to New York advised selling the dollar against the euro, the most in five months. The survey also indicated the dollar will drop versus the yen, Swiss franc and Australian dollar.
The U.S. Conference Board’s gauge of consumer sentiment in October probably fell to 94, the lowest since May, from 96.8 in September, according to the median forecast of 45 economists in a Bloomberg News survey. The report is scheduled for tomorrow.
The National Association of Purchasing Management-Chicago may say its business activity index dropped to 59 in October from 61.3 in September. The release is scheduled for Oct. 29.
Gains in the yen to its strongest in six months prompted concern Japanese authorities may sell its currency to stem the advance. Japan will “take action” on the yen if the currency fails to move in a stable manner, Vice Finance Minister Koichi Hosokawa said in a press conference today.
The yen’s gain accelerated when it rose beyond 107 per dollar, a level where automatic orders to buy the Japanese currency and sell the dollar were placed, according to Hideyuki Tsukamoto, foreign-exchange manager in Tokyo at Mizuho Bank Ltd. Traders often place pre-set orders to limit losses in the event their bets go the wrong way.
Strategists including Rebecca Patterson, at JPMorgan Chase & Co. in New York, said the yen may gain further against the dollar before the Bank of Japan sells the currency.
“If we saw the yen fall sharply, down toward 103 per dollar, then it’s a different story,” she said.
Lehman Brothers Holdings Inc., UBS AG, Bank of America Corp. and Barclays Capital also lowered their forecasts for the dollar last week.
The banks pared estimates after the Treasury Department said on Oct. 18 that foreign investors bought a net $59 billion of U.S. Treasuries, corporate debt and stocks in August, the least in 10 months.
“Concern about capital flows into the U.S. has increased,” said Robert Sinche, head of currency strategy in New York at Bank of America Corp., the third-largest U.S. bank. “You’ve got lackluster equity returns.”
Bank of America expects the dollar to trade between $1.22 and $1.32 per euro in the first six months of 2005, weaker than an earlier forecast of $1.18 to $1.25.
To contact the reporter on this story:
Vivianne C. Rodrigues in New York at at [email protected]
To contact the editor responsible for this story:
Daniel Moss at [email protected]