US dollar falls on Fannie Mae loss
* May 7, 2008 - 6:49AM
* Page 1 of 2
The US dollar fell for a second day against the euro as Fannie Mae
re****ted a larger-than-expected $US2.19 billion loss, indicating the
worst of the housing-led economic slowdown may not be over.
The US currency, up 3% against the euro from a record low set last
month, weakened as the price of oil surged past $US122 a barrel,
raising concern inflation will accelerate and growth may slow further.
The Swiss franc increased versus the Brazilian real and the pound on
speculation investors will reduce holdings of higher-yielding assets.
''This dollar rally has run out of gas,'' said Alan Ruskin, head of
international currency strategy at RBS Greenwich Capital Markets in
Greenwich, Connecticut. ''People have underestimated the potential for
losses'' among financial companies.
The dollar decreased 0.2% to $US1.5524 against the euro at 4.05pm in
New York, from $US1.5496 yesterday. It reached a record low of
$US1.6019 per euro on April 22. The dollar dropped 0.1% to 104.73 yen,
from 104.85 yesterday. The euro traded at 162.58 yen, compared with
162.46.
The US currency pared most of its drop against the euro after stocks
rallied. The government sparked a boost in financial shares when it
loosened restrictions on Fannie Mae. The Standard & Poor's 500 Index
increased 0.8%.
The Canadian dollar was the best performer against the US dollar among
the major currencies. It increased 1% to $C1.0027, the biggest gain in
almost three weeks, after a re****t showed business and government
spending was stronger in April than economists forecast.
The Swiss franc advanced 0.6% against the real and 0.1% against the
pound on speculation investors will reduce carry trades, in which they
get funds in a country with low borrowing costs and buy assets where
returns are higher. The Swiss target lending rate of 2.75% compares
with 11.75% in Brazil and 5% in the U.K.
The yen may strengthen about 5% to 100 per dollar in the next three
months on speculation investors will cut holdings of higher-yielding
assets as housing and economic growth slow further, according to a UBS
note to investors today. The Bank of Japan held its target rate at
0.5% last week.
Japan's currency has plummeted 3.3% against the dollar and 1.6% versus
the euro since April 14 as stocks rebounded on speculation credit-
market losses are ebbing. The S&P 500 has surged 5.7% since mid-April.
''The market went with the all-clear in the financial sector, and it's
just not the case,'' said Brian Dolan, chief currency strategist at
FOREX.com, a unit of online currency- trading firm Gain Capital in
Bedminster, New Jersey. ''The risk trades are coming off again.''
Fannie Mae said its credit-market losses will be worse next year than
in 2008. The Wa****ngton-based company and its smaller rival Freddie
Mac may each need as much as $US15 billion in capital to cope with
delinquencies and foreclosures.
UBS, battered by $US17.3 billion of first-quarter losses at its
investment-banking unit, plans to cut 5500 jobs and said clients
withdrew a net $US12.2 billion from its asset- and wealth- management
divisions. The world's biggest banks and securities firms have cut
65,000 jobs in the past 10 months as mortgage losses and writedowns
reached $US319 billion, according to Bloomberg News data.
Federal Reserve Chairman Ben S. Bernanke said yesterday mortgage
delinquencies will weigh on the economy, adding to speculation policy
makers will cut borrowing costs. He spoke at a Columbia Business
School dinner in New York.
''The financial crisis and economic weakness continue to take center
stage in the US,'' said Thomas Harr, a senior currency strategist in
Singa****e at Standard Chartered, in an interview on Bloomberg
Television. ''We expect pressure to remain on the dollar in the near
term.''
Crude oil rose to a record $US122.73 a barrel in New York on threats
to supply in Nigeria and Iraq and growing global fuel consumption. The
price may go as high as $US200 a barrel within two years, Goldman
Sachs analysts led by Arjun N. Murti said in a re****t yesterday.
Investors move to commodities as a hedge against the dollar when the
US currency falls against the euro. The euro versus the dollar has had
a correlation of 0.96 with the price of crude oil in the past 12
months. A reading of 1 would mean they move in lockstep.
The euro earlier rose against the dollar on a European Union re****t
showing producer-price inflation accelerated more than forecast in
March, increasing pressure on the European Central Bank to keep
interest rates on hold.
The ECB will leave the main refinancing rate at a six-year high of 4
percent on May 8, according to all 53 economists surveyed by Bloomberg
News. Fed funds futures on the Chicago Board of Trade show a 14%
chance the central bank will cut the 2% target lending rate by a
quarter-percentage point at its June 25 meeting, compared with no
chance a week ago. The balance of bets is for no reduction next month.
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