BLBG: Dollar Weakens After Israel-Hamas Conflict Pushes Up Oil Prices
The dollar fell the most in almost two weeks against the euro after fighting in the Gaza Strip drove up oil prices, adding to concern a recession will deepen in the world’s largest energy-consuming nation.
The currency also dropped versus the yen before U.S. housing and manufacturing reports this week that may show the world’s biggest economy is deteriorating. The euro rose the most in a week against the yen amid speculation it will attract funds as the Bank of Japan favors near-zero interest rates.
“The mood in the market now is to buy the euro and sell the dollar because it’s the safest bet,” said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc. “Mideast tensions aren’t good for the U.S. economy.”
The dollar slid 1.2 percent, the most since Dec. 17, to $1.4098 per euro as of 2:39 p.m. in Tokyo from $1.3927 late in New York yesterday, when it reached a one-week low of $1.4364. The decline trimmed this year’s advance to 3.5 percent. The currency also declined to 90.18 yen from 90.68 yen, extending its 2008 loss to 19 percent.
The U.S. currency also fell 0.8 percent to $1.4511 against the British pound and dropped 0.9 percent to 1.0532 versus the Swiss franc.
The euro gained 0.7 percent to 127.12 yen, the biggest advance in a week, paring this year’s loss to 22 percent. It also climbed to 97.15 British pence from 96.71 pence yesterday, when it reached a record 98 pence. It has risen 32 percent in 2008. Exchange-rate movements may be exaggerated because of the year-end holidays, Ogawa said.
Israel, Hamas
The greenback weakened against 14 of the 16 most-active currencies after Israel hinted it may broaden its assault on the Hamas-controlled Gaza Strip with a ground operation after three days of air raids failed to end cross-border rocket attacks.
Crude oil for February delivery jumped 13 percent in the last two days on the New York Mercantile Exchange. It recently traded at $39.64 a barrel in after-hours electronic trading, down 1 percent from yesterday’s close.
The U.S. is the world’s largest energy consumer. It consumed 20.7 million barrels of oil a day in 2007, while the European Union consumed 14.9 million barrels a day, according to the British Petroleum Statistical Review.
“Rising oil prices makes it more expensive for those in the U.S. to buy the commodity, especially when its economy is doing poorly and the weather is cold there,” said Yuji Saito, head of the foreign-exchange group at Societe General SA in Tokyo. “It’s extremely negative for the dollar.”
The U.S. currency may weaken to $1.4200 per euro and 89.50 yen today, Saito said.
The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
U.S. Economic Reports
The dollar snapped two days of gains against the pound and fell for a third day versus the franc before U.S. reports this week that economists estimate will show the recession deepened.
Home prices for the 20 largest metropolitan areas in the U.S. fell 17.9 percent in October from a year earlier, the biggest decline since record keeping began in 2001, according to economists in a Bloomberg survey before the S&P/Case-Shiller index is published today.
The Institute for Supply Management’s December factory index dropped to 35.4, the lowest reading since 1982, a separate Bloomberg survey showed. The ISM report is due Jan. 2.
“The U.S. economy is in a bad shape and there are worries that it may get worse,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The dollar is being sold.”
The dollar may weaken to 90 yen today, Ishikawa said.
The U.S. Treasury committed $6 billion to support GMAC LLC, the financing arm of General Motors Corp., widening the government’s effort to keep the largest U.S. automaker out of bankruptcy, according to a statement issued yesterday.
‘Money Offshore’
Japan’s currency declined against the euro, trimming this year’s gain to 28 percent, on prospects Japanese investors will seek higher returns abroad.
The benchmark interest rate is 0.1 percent in Japan, compared with 2.5 percent in the 15-nation euro area, 4.25 percent in Australia and 5 percent in New Zealand.
“From an interest-rate differential perspective, the euro and Oceanic currencies are attractive,” said Yoshisada Ishide, a fund manager who overseas the equivalent of around $1.5 billion at Daiwa SB Investments Ltd. in Tokyo. “Investors might not be able to live in a world with zero return, so they may place their money offshore.”
Australia’s dollar gained 0.5 percent to 62.39 yen from 62.10 yen in New York yesterday and New Zealand’s dollar rose 0.6 percent to 52.51 yen from 52.19 yen.
