Dollar Falls Against Yen, Euro Before Housing, Inflation Data

By Kosuke Goto and Stanley White
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Aug. 18 (Bloomberg) -- The dollar fell from a seven-month high versus the yen before U.S. government housing and inflation reports this week that may add to speculation the Federal Reserve will delay raising interest rates.

The currency also retreated from the strongest level in almost six months against the euro and snapped a three-day advance, after crude oil and gold gained, eroding the allure of dollar-denominated assets. The British pound slid against the euro as an industry report showed U.K. home prices dropped the most since at least 2002.

``The U.S. housing slump will take two or three years to bottom out,'' said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's biggest financial group by market value. ``Hefty oil prices will keep buffeting the U.S., the world's largest energy consumer, and the dollar.''

The U.S. currency weakened to 110.16 yen as of 7:32 a.m. in London from 110.53 yen in New York on Aug. 15, when it reached 110.66, the strongest since Jan. 2. The dollar declined to $1.4760 per euro from $1.4687 late last week. It earlier touched $1.4647, the highest since Feb. 20. The euro traded at 162.59 yen from 162.30.

The dollar may fall to 100 yen by year-end, Mizuno forecast.

The pound dropped to 78.87 pence per euro, from 78.69 pence late last week, after Rightmove Plc said the average asking price for a home in August fell 4.8 percent from a year earlier.

Aussie, Kiwi

The Australian dollar rose to 87.40 U.S. cents from 86.62 cents late in New York as the price of gold, the nation's third most-valuable commodity export, climbed for the first time in three days. New Zealand's currency gained 0.5 percent to 70.97 U.S. cents on speculation the South Pacific nation will maintain its interest-rate advantage over the U.S.

Benchmark rates are 2 percent in the U.S., 7.25 percent in Australia and 8 percent in New Zealand.

South Korea's won fell to a six-week low on speculation importers were buying dollars and after a report showed retail sales declined. It lost 0.4 percent to 1,044.10 per U.S. dollar.

U.S. housing starts dropped 9.9 percent to an annual rate of 960,000 in July, the fewest in 17 years, according to a Bloomberg News survey ahead of the Commerce Department report tomorrow. The Labor Department will tomorrow report the producer price index climbed 0.5 percent in July after jumping 1.8 percent in June, a separate survey showed.

Deficit Balloons

The Brazil real is now showing signs of weakening as a decline in commodity prices cuts export receipts and adds to concern that the current-account deficit, the broadest measure of trade, will keep widening.

The deficit ballooned to $17.4 billion in the first half of the year, the widest since the central bank began tracking the data in 1947, as imports climbed to a record. The country had a $2.4 billion surplus in the year-earlier period.

The real slid 4.8 percent in the past two weeks to 1.6380 as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials sunk 17 percent from July 2. Commodities account for about one-third of exports in Latin America's biggest economy.

Futures Traders

Crude oil for September delivery rose 1.2 percent to $115.17 a barrel, climbing for the first time in three days, as Tropical Storm Fay prompted evacuations from rigs and production platforms in the Gulf of Mexico.

The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations based on their value changes. A reading of 1 would mean they moved in lockstep.

Fed funds futures on the Chicago Board of Trade show a 14 percent chance the U.S. central bank will increase the 2 percent overnight lending rate between banks by a quarter-percentage point at its September meeting, down from 18 percent a week earlier.

Futures traders are betting for the first time since March 2007 that the dollar will advance against the euro, yen and British pound.

The difference in the number of wagers by hedge funds and other large speculators on a gain in the dollar compared with those on a decline, known as net longs, was 24,060 on Aug. 12, compared with net shorts of 20,886 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed on Aug. 15.

Dollar Forecasts

JPMorgan Chase & Co., the third-largest U.S. bank, raised its forecasts for the dollar against the euro, the pound and the Australian dollar.

The dollar may trade at $1.47 per euro by year-end, compared with a previous forecast of $1.50, Tohru Sasaki, chief currency strategist at JPMorgan in Tokyo, wrote in a research note today. The currency will trade at $1.84 per pound and 84 cents against the Australian dollar by Dec. 31, versus earlier forecasts of $1.85 and 93 cents, respectively, he wrote.

``This is the unwinding of short-dollar positions,'' Sasaki said, confirming the report. Short positions are bets that a currency will decline.

Gains in the euro may be limited by speculation that investor confidence in Germany remained near a record low, discouraging the European Central Bank from raising rates.

The ZEW Center for European Economic Research's index of investor and analyst expectations, due tomorrow in Mannheim, was minus 62 in August, according to a Bloomberg News survey. That's near last month's minus 63.9, which was the weakest since the ZEW began compiling the data in December 1991.

``I expect the euro to decline further based on a deteriorating economic outlook,'' said Katsunori Kitakura, chief treasury dealer in Tokyo at Chuo Mitsui Trust & Banking Co., Japan's seventh-largest publicly listed lender. ``It's clear that the focus is shifting to growth from inflation.''

The euro may fall to $1.45 in the next two weeks, he said.

To contact the reporters on this story: Kosuke Goto in Tokyo at at kgoto2@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net