Barclays Capital Forecasts Dollar to Drop 2.5% on Oil
Monday, 21. April 2008, 20:00:58
Bloomberg's Kosuke Goto reports that Barclays Capital forecast the dollar will drop 2.5 percent against the euro in three months as record oil prices increase the U.S. import bill and prevent the European Central Bank from cutting interest rates because of inflation.
The securities unit of Barclays Plc, the U.K.'s third- biggest bank, predicts the dollar will fall to $1.63 per euro, compared with a previous estimate of $1.50, analysts led by David Woo, London-based global head of currency strategy, wrote in a research note yesterday. Against the pound, the U.S. currency will weaken to $2.05 versus $1.97.
The Dollar Is Being Driven Lower
``The U.S. dollar is locked in a vicious circle,'' they wrote. The currency's drop is causing higher oil prices as oil nations seek to preserve their revenues and ``this in turn leads to further dollar weakness as the European Central Bank becomes even less likely to follow Federal Reserve easing.''
The U.S. currency, $USD, traded at $1.5898 per euro, FXE, as of 6:45 a.m. in London from $1.5908 in New York yesterday, when it reached $1.5983, the lowest level since the European single currency's debut in 1999. Against the pound, it traded at $1.9896, from $1.9912 yesterday and was at 102.44 versus the yen.
The dollar has declined about 8.2 percent versus the euro and Japanese yen in 2008 as oil prices rose to an all-time high of $115.54 a barrel compared with $95.98 on Dec. 31. Against the pound, it has dropped 0.2 percent. Interest-rate cuts by the Federal Reserve to keep the U.S. economy out of a recession have also reduced demand for dollar-denominated assets.
The dollar dropped 12 percent against the euro since September as the Fed cut the overnight lending rate between banks by 3 percentage points to 2.25 percent as subprime-mortgage losses spread. European Central Bank officials have signaled they are unlikely to cut their benchmark rate from 4 percent because lower borrowing costs may further accelerate inflation.
A housing slump in the U.K. has also prompted the Bank of England to reduce its interest rate twice this year to 5 percent from 5.5 percent, spurring a retreat in the pound from a record high of $2.1161 on Nov. 9. The euro reached an all-time high of 0.80985 pence this week and traded at 0.7989 pence in London.
Barclays Capital revised its forecast for the euro to 79 pence in three months, compared with a previous forecast of 76 pence.
Futures on the Chicago Board of Trade show 82 percent odds that Fed policy makers will reduce the U.S. interest rate by a quarter-percentage point on April 30.
The Libor Rate Is Being Driven Higher
Traders are betting the European Central Bank will keep the main refinancing rate at a six-year high. The yield on three- month Euribor contracts expiring in December rose to 4.405 percent today, the highest this year.
The contracts settle to the three-month inter-bank offered rate for the euro, which has averaged 18 basis points more than the ECB's benchmark rate from 1999 until August.
The Currency Torture Of A Higher Euro And A Lower Dollar Will Only Serve To Drive Gold Higher
Question: Got Gold?
The securities unit of Barclays Plc, the U.K.'s third- biggest bank, predicts the dollar will fall to $1.63 per euro, compared with a previous estimate of $1.50, analysts led by David Woo, London-based global head of currency strategy, wrote in a research note yesterday. Against the pound, the U.S. currency will weaken to $2.05 versus $1.97.
The Dollar Is Being Driven Lower
``The U.S. dollar is locked in a vicious circle,'' they wrote. The currency's drop is causing higher oil prices as oil nations seek to preserve their revenues and ``this in turn leads to further dollar weakness as the European Central Bank becomes even less likely to follow Federal Reserve easing.''
The U.S. currency, $USD, traded at $1.5898 per euro, FXE, as of 6:45 a.m. in London from $1.5908 in New York yesterday, when it reached $1.5983, the lowest level since the European single currency's debut in 1999. Against the pound, it traded at $1.9896, from $1.9912 yesterday and was at 102.44 versus the yen.
The dollar has declined about 8.2 percent versus the euro and Japanese yen in 2008 as oil prices rose to an all-time high of $115.54 a barrel compared with $95.98 on Dec. 31. Against the pound, it has dropped 0.2 percent. Interest-rate cuts by the Federal Reserve to keep the U.S. economy out of a recession have also reduced demand for dollar-denominated assets.
The dollar dropped 12 percent against the euro since September as the Fed cut the overnight lending rate between banks by 3 percentage points to 2.25 percent as subprime-mortgage losses spread. European Central Bank officials have signaled they are unlikely to cut their benchmark rate from 4 percent because lower borrowing costs may further accelerate inflation.
A housing slump in the U.K. has also prompted the Bank of England to reduce its interest rate twice this year to 5 percent from 5.5 percent, spurring a retreat in the pound from a record high of $2.1161 on Nov. 9. The euro reached an all-time high of 0.80985 pence this week and traded at 0.7989 pence in London.
Barclays Capital revised its forecast for the euro to 79 pence in three months, compared with a previous forecast of 76 pence.
Futures on the Chicago Board of Trade show 82 percent odds that Fed policy makers will reduce the U.S. interest rate by a quarter-percentage point on April 30.
The Libor Rate Is Being Driven Higher
Traders are betting the European Central Bank will keep the main refinancing rate at a six-year high. The yield on three- month Euribor contracts expiring in December rose to 4.405 percent today, the highest this year.
The contracts settle to the three-month inter-bank offered rate for the euro, which has averaged 18 basis points more than the ECB's benchmark rate from 1999 until August.
The Currency Torture Of A Higher Euro And A Lower Dollar Will Only Serve To Drive Gold Higher
Question: Got Gold?
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