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Dollar Posts Biggest Weekly Decline Since April 2006 on Housing

By Min Zeng


Dec. 28 (Bloomberg) -- The dollar fell against the euro and posted the biggest weekly decline versus the currency since April 2006 after a Commerce Department report showed sales of new homes fell to a 12-year low last month.

The U.S. currency decreased for a sixth day, the longest decline since October, on bets a slowing economy will encourage the Federal Reserve to cut borrowing costs next month. The dollar weakened against the yen and Swiss franc as riots erupted in Pakistan, considered an ally in the U.S. war on terrorism, a day after the slaying of former Prime Minister Benazir Bhutto.

``In the near term, the dollar probably remains on the weak side,'' said Doug Smith, chief Americas economist in New York at Standard Chartered Bank. ``The weakness in the housing sector continued to weigh growth down and increased the likelihood of a rate cut in January.''

The dollar fell to $1.4716 per euro at 4:01 p.m. in New York from $1.4626 yesterday. It's down 2.3 percent this week. The dollar declined against 14 of the 16 most actively traded currencies this year as the Fed cut the target rate for overnight lending between banks three times to 4.25 percent.

The U.S. currency has lost 10.3 percent against the euro and 5.4 percent versus the yen in 2007. The dollar has dropped every year versus the euro since 2001, except in 2005, when the dollar rose 13 percent.

The Swiss franc increased today against most of the 16 most actively traded currencies, and the yen rose against the dollar, pound and currencies in Brazil, New Zealand and Australia on speculation the upheaval in Pakistan will lead to a reduction of carry trades funded in Switzerland and Japan.

Carry Trade

Investors borrow in countries with low interest rates and convert the proceeds into currencies that they can lend out for a higher return. They earn the spread between the borrowing and lending rates, incurring the risk that currency fluctuations may erase their profits.

``The Swiss franc is traditionally considered a safe-haven currency, and geopolitical risks pushed people to cut carry trades,'' said Nick Bennenbroek, head of currency strategy in New York at Wells Fargo & Co.

The Swiss franc rose to 1.1270 from 1.1391 per dollar, and the yen increased to 112.76 from 113.73. The dollar has lost 2.4 percent against the Swiss franc and 1.2 percent versus the yen this week. The euro traded at 165.78 yen, compared with 166.34 yesterday.

The pound fell to a record low of 73.89 pence per euro after a U.K. report showing falling house prices increased bets the Bank of England will cut interest rates from 5.5 percent.

Dollar's Decline

The Swiss franc and the Swedish krona led the gainers versus the dollar, rising more than 1 percent. For the week, the dollar is down against all 16 major currencies except the Mexican peso on signs the U.S. economy is slowing.

Sales of new homes in the U.S. fell 9 percent to an annual rate of 647,000, the Commerce Department said today in Washington. October sales were revised down to a 711,000 pace.

Home prices in 20 U.S. metropolitan areas decreased 6.1 percent in October, the S&P/Case-Shiller home-price index showed Dec. 26. The decrease was the biggest since the group started keeping year-over-year records in 2001.

``The dollar is like a sore thumb getting hit by a hammer,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. ``U.S. housing data shows no signs of any bottom in sight.''

Fed Rate Outlook

Interest-rate futures on the Chicago Board of Trade indicate 90 percent odds that the Fed will reduce its benchmark interest rate a quarter-percentage point at its Jan. 30 meeting, compared with a 76 percent chance yesterday.

The dollar's share of global foreign-exchange reserves fell to the lowest level since records began in 1999, as international demand for U.S. assets slumped after the subprime- mortgage market collapsed.

The U.S. currency will rebound to $1.39 per euro by the end of 2008, according to the median forecast of 42 economists surveyed by Bloomberg News. The yen will trade at 110 per dollar, according to the survey.

The dollar weakened earlier as Bhutto was buried in her ancestral village and troops were deployed to quell riots in several cities. The government said al-Qaeda may be behind Bhutto's killing and ordered a judicial inquiry.

``Considering the U.S. relationship with Pakistan and the negative impact of increased tensions in the region for the U.S., the market chose to punish the dollar,'' said Camilla Sutton, co-head of currency strategy in Toronto at Scotia Capital Inc. ``This combined with negative U.S. economic data has left the dollar struggling as we move into year-end.''

The Pakistan rupee was unchanged at 61.40 per dollar, according to data compiled by Bloomberg. It has fallen 0.7 percent this week. The risk of Pakistan defaulting on its debt rose to the highest in a month, credit-default swaps show.

How much for your country ? I buy, yes ? How much ? I have much Euros, nice Euros, I buy, yes ?

that'll be 17.5 million euros. I'll pm you with the account number to wire it to.

In that article they throw in a million ideas that have little to nothing to do with the value of the currency.

What they don't want to report in most papers is that it is our current Account Deficit and the FED's bailout of Wallstreet by printing money that is driving it down. The Account Deficit is mostly from the War overspending, and the bailout is the FED throwing billions down a dark hole every week since August.

They are literally stealing the value of our paychecks and savings from the poor and middle class.