US Dollar Falling On Reports That U.S. GDP Weakening

Discussion in 'Economics' started by ByLoSellHi, Feb 25, 2007.


    Dollar Falls on Speculation Reports Will Show Slowing Economy

    By Chris Young

    Feb. 26 (Bloomberg) --
    The dollar fell against the yen and euro on bets the pace of economic growth is slowing.

    The U.S. economy expanded in the fourth quarter at a slower pace than previously estimated, a report on Feb. 28 will show, according to a Bloomberg News survey of economists. The dollar has fallen 2 percent versus the euro in the past month on speculation the interest-rate gap between the U.S. and Europe will narrow.

    ``There's a whole raft of data out of the U.S. this week and this will reflect the bearish dollar outlook that we have,'' said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. ``The Federal Reserve is undoubtedly on hold, with the next move likely to be a cut.''

    The dollar fell to $1.3190 per euro as of 9:42 a.m. in Tokyo, the weakest since Jan. 3, and compared with $1.3166 late in New York on Feb. 23. It also dropped to 120.86 yen from 121.08. The currency may decline to $1.33 per euro by the end of March, Trinh said.

    The U.S. currency was weaker today against 14 of the 16 most-active currencies. It traded at $1.9642 versus the British pound from $1.9633 on Feb. 23 in New York.

    The Fed's target overnight lending rate between banks of 5.25 percent is 1.75 percentage points higher than the European Central Bank's key lending rate.

    Greater Risk

    Fed Bank of San Francisco President Janet Yellen on Feb. 23 said raising rates to reduce inflation more quickly would pose unacceptable risks to the economy.

    ``I would see that as creating greater risks to employment and to the real economy that to my mind represent a risk that we should not take,'' she said in response to an audience question after a speech in Sacramento, California.

    Yellen still reiterated support for keeping the Fed biased toward tighter credit and said the Fed's current policy stance, with the benchmark rate unchanged since June, is ``well positioned'' to keep prices in check.

    The Commerce Department will say the economy grew at an annual rate of 2.3 percent last quarter, compared with the 3.5 percent pace it reported last month, according to the Bloomberg survey of economists. The department will also report on Feb. 28 that sales of new homes declined 3.6 percent to an annual rate of 1.08 million, a separate Bloomberg survey showed.

    ``U.S. data will be more downbeat than the market is expecting,'' said Jonathan Cavenagh, a currency strategist in Sydney at Westpac Banking Corp. ``This will weigh on the U.S. dollar,'' which will drop to $1.32 per euro this week, he said.