Monday, December 1, 2008

Dollar Falls Against Yen as Reports to Show Deepening Recession

Dec. 1 (Bloomberg) -- The dollar fell against the yen before U.S. reports that may show manufacturing shrank and employers cut jobs by the most since 2001 as the recession deepens.

The euro fell against the dollar as traders bet the European Central Bank will trim borrowing costs this week in response to a recession. The Australian and New Zealand dollars weakened as economists forecast policy makers in both countries will cut interest rates this week as the economic outlook deteriorates.

“People may look more closely at the U.S. economy, so there’s some scope for dollar depreciation,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “Higher-yielding currencies are losing their appeal because the interest rate differential isn’t working in their favor.”

The dollar traded at 95.33 yen as of 9:27 a.m. in Tokyo from late in New York on Nov. 28. It fell to 94.61 yen on Nov. 26, the lowest since Nov. 21. The euro bought $1.2673 from $1.2691 at the end of last week. The euro was quoted at 120.80 yen from 121.22 on Nov. 28. The U.S. currency may decline to 94.80 yen and trade at $1.2550 per euro today, Shimizu said.

The Australian dollar fell 0.7 percent to 65.08 U.S. cents from Nov. 28 in New York. The Aussie, as the currency is known, also weakened by 0.9 percent to 62.01 yen. New Zealand’s dollar fell 0.7 percent to 54.51 U.S. cents and 0.8 percent to 51.94 yen.

Australia, N.Z. Rates

The Reserve Bank of Australia will make a fourth consecutive reduction to its key rate tomorrow, cutting by 75 basis points to 4.5 percent, according to the median estimate of 20 economists surveyed by Bloomberg. New Zealand’s central bank will slash its cash rate by 150 basis points to 5 percent on Dec. 4, based on a survey of 17 economists. A basis point is 0.01 percentage point.

U.S. nonfarm payrolls shrank by 320,000 workers in November following a decline by 240,000 in the previous month, according to a Bloomberg News survey before the Labor Department’s Dec. 5 report. The jobless rate may have jumped to 6.8 percent, the highest level since 1993, a separate Bloomberg survey showed.

The ISM may say manufacturing shrank in November for a fourth month, according to another Bloomberg survey. The Tempe, Arizona-based ISM releases the data at 10 a.m. today in New York.

Fighting Recessions

The world’s largest economy contracted at a 0.5 percent pace in the third quarter and consumer spending fell at a 3.7 percent rate, the biggest tumble since 1980, the government said last week. The global economy is grappling with recession as financial institutions worldwide racked up $967 billion in losses on mortgage derivatives since the start of 2007, leading to a credit market seizure and declines in company and personal spending.

The euro fell for a fifth day against the yen, its longest stretch since Oct. 6, on speculation the European Central Bank will cut interest rates this week to revive growth.

A report on Nov. 28 showed Europe’s inflation rate dropped to 2.1 percent in November from 3.2 percent in October, giving policy makers room to lower borrowing costs when they meet Dec. 4.

“European data continue to deteriorate at an increasingly rapid pace and the recent easing of inflation pressures means there is scope for a bold cut by the ECB,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “For euro-dollar, this suggests a visit to the recent lows of between $1.2300 and $1.2400 is likely.”

Producer prices in Europe fell 0.3 percent in October from the previous month, after a 0.2 percent decline in September, according to a Bloomberg News survey of economists. That report is due tomorrow. Retail sales dropped 0.4 percent in October from the prior month, after a 0.2 percent decline in September, a separate Bloomberg survey shows. The report is due on Dec. 3.

Traders increased bets the ECB will cut its 3.25 percent benchmark rate. The implied yield on Euribor futures contracts expiring in June declined to 2.42 percent on Nov. 28 from 2.44 percent on Nov. 27.

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