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09/15 15:21
U.S. Dollar May Extend Eight-Week Rally: Currency Outlook
By Heather Bandur
New York, Sept. 15 (Bloomberg) -- The dollar may keep rising.
The eight-week rally that has driven the U.S. currency up from a 2 1/2-year low against the euro and a 17-month low against the yen will last at least another week as evidence mounts that economic growth is stronger in the U.S. than in Europe and Japan, some analysts said.
The U.S. economy ``is poised to recover and grow, as opposed to some of its major trading partners, including Europe, which will help the dollar,'' said Andrew Pyle, senior economist at Scotia Capital in Toronto.
Last week, the dollar strengthened to 97.26 U.S. cents from 98.18 as reports showed that retail sales and wholesale inventories climbed more than expected in the U.S. Against the yen, the dollar rose to 121.79 yen, a 12-week high, from 118.54 on Sept. 6. The dollar has gained 4.4 percent against the euro and 5.4 percent against the yen since reaching its lows in mid-July.
Vice President Dick Cheney, speaking on CNN's ``Novak, Hunt & Shields,'' said that despite some weakness, the U.S. economy ``is fairly sound and that it's just a matter of time before we'll be able to move forward here and see resumed growth.''
Reports
A Philadelphia-area manufacturing report, due out on Thursday, will provide the latest sign that economic growth will pick up in the U.S. before year-end, analysts said. The report will probably show regional production rose in September after unexpectedly contracting for the first time this year in August.
The housing market continues to provide a boost to the U.S. economy. Builders probably broke ground on new homes and apartments at a 1.67 million-unit annual rate in August, up from a 1.649 million unit pace in July.
Americans are buying homes because mortgage rates are at generation lows. The average rate on a 30-year mortgage was 6.18 percent last week, close to the 6.15 percent rate the prior week, which was the lowest since Freddie Mac, the No. 2 mortgage buyer, began keeping track in 1971.
Retail sales increased 0.8 percent last month from July, spurred by low-interest financing for automobiles and purchases of furniture and building supplies. That followed a 1.1 percent gain a month earlier.
In Germany, Europe's biggest economy, an index of confidence for analysts and institutional investors probably fell for a third month, a sign growth may remain sluggish. The ZEW Center for European Economic Research's index fell to 36 from 43.3 in August, according to economists surveyed by Bloomberg News.
Bank of Japan
Speculation that the Japanese government may sell yen to boost the nation's faltering export-led recovery may weaken the yen, analysts said. Haruhiko Kuroda, vice finance minister for international affairs, said Friday that selling the currency ``in a massive way'' would help reverse deflation and boost exports.
Kuroda's comments ``signaled Japanese authorities are concerned about deflation and a strong yen,'' said Greg Salvaggio, a trader at Tempus Consulting in Washington.
An 8.1 percent increase in the yen against the dollar has made its exports more expensive, slowing growth in sales abroad, analysts said. Exports have accounted for about half the nation's growth during its recovery.
The Bank of Japan convenes for a two-day meeting beginning Tuesday. Sales by the bank would add to the 4 trillion yen it sold over seven days in May and June, a record for one quarter.
Expectations the most closely watched European stock measures will lag U.S. stocks may dampen demand for the euro.
Stocks
The German DAX has lost three times as much as the Standard & Poor's 500 Index this month, shedding 9 percent. In the year, the German stock measure has fallen 35 percent; the S&P has lost 23 percent.
``The No. 1 factor is the stock market, with the dollar following U.S. equities,'' said Jeremy Fand, a strategist at Friedberg Mercantile Group.
The dollar has traded in the same direction as the S&P 500 more than 90 percent of the time over the past six months, according to Bloomberg data.
The U.S. economy is forecast to grow 2.3 percent this year, according to a Blue Chip Economic Indicators survey, while growth in the 12 nations using the euro is likely to fall short of 1 percent this year, the European Commission said.
Japan's economy, which grew 0.6 percent in the second quarter, probably won't grow more than 0.5 percent over the next two years, economy and fiscal policy minister Heizo Tanaka said last week.
``Even though the U.S. recovery has been lackluster, it's still stronger than anything we have seen out of Europe and Japan,'' said Doug Porter, an economist at BMO Nesbitt Burns Inc.
U.S. Treasury Secretary Paul O'Neill is scheduled to speak Monday on the economy.
