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Dollar Snaps Seven-Day Decline as Charts Signal Loss Excessive Stanley
White and Kosuke Goto The dollar snapped seven days of losses against the euro on speculation the currency's 1.6 percent decline over the past month was too fast as the Federal Reserve signaled it may have finished cutting interest rates. The U.S. currency rebounded from a record low versus the euro as the Federal Reserve said in the statement following yesterday's quarter-percentage point cut in rates that ``the upside risks to inflation roughly balance the downside risks to growth.'' A chart traders watch to predict currency moves rose above a level that suggests the euro is about to decline. ``There are technical signs the euro's gains and the dollar's losses have gotten out of hand,'' said Hiroshi Yoshida, a foreign-exchange trader at Shinkin Central Bank in Tokyo. ``We could see an adjustment lower in the euro.''
The dollar rose to $1.4431 per euro at 8:15 a.m. in London compared with $1.4487 yesterday, when it touched $1.4504, the weakest since the European currency's debut in January 1999. The U.S. currency was at 115.64 yen from 115.43. Yoshida correctly forecast the dollar would rise to $1.4430 against the euro today. The euro's relative strength index against the dollar, a comparison of the magnitude of gains and losses, has been above 70 over the past three days. That's a level that signals a currency may decline. UBS AG, Europe's largest bank by assets, predicts the dollar will bounce back to $1.35 per euro in 12 months after being ``oversold.'' The bank cut its one-month forecast for the U.S. currency to $1.45 from $1.42 previously and revised a three-month estimate to $1.40 from $1.35. The U.S. dollar recouped losses against the Australian dollar, South African rand and the Canadian dollar, currencies that have benefited from increased demand for commodities. Commodity Currencies The Australian dollar bought 93.04 U.S. cents, down from a 23-year high of 93.43. The rand was at 6.5225 per dollar from 6.4986 yesterday and the Canadian dollar traded at $1.0572 from $1.0603. ``There's talk of speculators buying back dollars they sold before the Fed meeting,'' said Osao Iizuka, head of foreign- exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``This is likely a temporary adjustment to the speed of the dollar's recent decline.'' The dollar may advance to $1.4420 per euro today, he said. U.S. two-year notes fell for a fourth day after the Fed signaled it may be ready to stop reducing interest rates, following its second cut in two months to 4.5 percent. The Fed lowered its target rate by a half-percentage point Sept. 18, the first reduction since 2003, after losses from subprime mortgage investments roiled credit markets. ``Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,'' the Federal Open Market Committee said. Fed Rates Futures contracts indicate a 98 percent chance that the Fed will hold the target for overnight bank lending unchanged through the end of the year. There was a 92 percent chance of another reduction a week ago. The dollar may be buoyed by speculation U.S. jobs creation may exceed forecasts as the labor market is strong enough to withstand a recession in housing. Employers added 80,000 workers to nonfarm payrolls last month following an increase of 110,000 in September, based on the median forecast in a Bloomberg News survey. The government will release the data tomorrow at 8:30 a.m. in Washington. ADP Employer Services said yesterday the U.S. added 106,000 jobs in October, more than economists' forecasts. The private sector ADP report is often a leading indicator for U.S. nonfarm payrolls data. `Upside Risk' ``U.S. jobs data have an upside risk,'' said Masafumi Yamamoto, a currency economist at Nikko Citigroup Ltd. in Tokyo and a former Bank of Japan trader. ``Strong figures will reduce expectations of rate cuts, prompting the dollar-buying. The yen will be sold, if stocks are buoyed by jobs data.'' The U.S. currency may move between 114 yen and 117 yen, and $1.43 and $1.46 a euro this week, Yamamoto said. The yen fell to the lowest in more than three months against South Africa's rand as a rally in Asian stocks gave traders confidence to resume buying higher-yielding investments funded by loans in Japan. The yen fell to as low as 17.78 against the rand, the lowest since July 23, from 17.76 yesterday in New York. It also slid to 107.85 against the Australia's currency and approached the lowest since 1991. The Morgan Stanley Capital International Asia-Pacific Index added 0.6 percent. Bank of Japan Governor Toshihiko Fukui said the central bank will raise rates gradually based on developments in the economy and prices. Policy makers yesterday kept rates on hold at 0.5 percent and forecast slower economic growth and abandoned a prediction that consumer prices will increase this year. Japan's Interest Rates ``The yen will remain weak as long as rates stay low,'' said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co. The yen may fall to 177 a euro by the first quarter of 2009, Mizuno forecast. It was at 167.09 today. In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency moves erase those profits.
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