March 18 (Bloomberg) -- The dollar fell for a fifth day against the yen and the euro on speculation the Federal Reserve will cut its benchmark interest rate at least 1 percentage point today to reduce the risk of bank failures.
The currency dropped the most against the Swiss franc, traditionally favored by investors during times of crisis, after the fire-sale of Bear Stearns Cos. caused U.S. financial stocks to slump. Traders increased bets the Fed will cut the target for the overnight lending rate between banks to 2 percent, after an emergency cut in its discount rate on the weekend.
``Financial turmoil will continue, pushing down the dollar and propelling the yen,'' said Junya Ota, who oversees the equivalent of about $7 billion as a chief fund manager at Mitsubishi UFJ Asset Management Co., a unit of Japan's largest publicly traded lender by assets.
The U.S. currency fell to 97.13 yen at 1:47 p.m. in Tokyo from 97.33 late yesterday, when it touched 95.76 yen, the lowest since Aug. 15, 1995. The dollar weakened to $1.5777 per euro, after reaching $1.5903 yesterday, the weakest level since the euro started trading in 1999.
The dollar may fall to 90 yen in a few weeks, Ota said.
The South Korean won gained 1 percent to 1,018.95 per dollar after Deputy Finance Minister Shin Je Yoon said the government and central bank will take action against the currency's decline if the market doesn't ``stabilize.'' The won is ``one canary in the coal mine'' and other regional currencies may follow it by weakening, Stephen Jen, chief currency strategist in London at Morgan Stanley, wrote in a research report yesterday.
`Excessive' Moves
Japan's Finance Minister Fukushiro Nukaga said today he's concerned about ``excessive'' currency-market movements. Nippon Steel Corp., the world's second-biggest maker of the alloy, said yesterday the surging yen may damp earnings. Prime Minister Yasuo Fukuda urged foreign-exchange officials to communicate well with overseas authorities about the dollar drop, Kyodo News reported.
``I'm concerned with when the U.S. dollar will reach a bottom, and what monetary policies the U.S. will take,'' China's Premier Wen Jiabao told a press conference after the close of the annual legislature meeting. The yuan was little changed at 7.0854, close to the highest since the end of its dollar link in 2005.
The U.S. currency fell 0.4 percent to 0.9805 Swiss franc, approaching a record low of 0.9638. Switzerland's currency gained 16 percent against the dollar this year. It climbed almost 3 percent in a day after the Sept. 11, 2001, terrorist attacks.
Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, today may report its lowest quarterly profit since 2003, a day after its stock slumped 19 percent. Chief Executive Officer Richard Fuld yesterday said easier Fed lending conditions will take ``the liquidity issue for the entire industry off the table.''
Fed Outlook
Traders saw a 78 percent likelihood the Fed will cut its target rate by 1 point at today's meeting, according to futures on the Chicago Board of Trade. There is a 22 percent chance the rate will be lowered 1.25 points, futures show. The Fed lowered the rate it charges commercial banks for loans by a quarter-point to 3.25 percent on the weekend.
``The best way of positioning for the uncertainty surrounding this decision is to sell the dollar against the yen,'' said analysts led by London-based global head of currency strategy David Woo at Barclays Capital in a research note yesterday. ``If the Fed eases policy aggressively, the dollar will be under pressure across currencies.''
Housing Slump
Interest rates are 0.5 percent in Japan, 4 percent in Europe, 7.25 percent in Australia, 8.25 percent in New Zealand and 2.75 percent in Switzerland. The Japanese government nominated Koji Tanami, a former vice finance minister, to replace Bank of Japan Governor Toshihiko Fukui when his term expires tomorrow.
``The leading opposition party may not accept Tanami,'' said Kenta Inoue, economist and currency analyst in Tokyo at Mitsubishi UFJ Securities, a unit of Japan's largest publicly listed lender. ``The foreign exchange market has been contemplating the possibility the BOJ will have no governor, so the impact on the yen may be limited.''
The U.S. currency has lost 15 percent against the euro and 17 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points.
The dollar also weakened on speculation data will show a real-estate slump pushing the U.S. economy into a recession. U.S. housing starts fell to 995,000 units at an annual rate in February, the lowest since 1991, according to a Bloomberg survey. The Commerce Department will release the data at 8:30 a.m. in Washington today.
Subprime Losses
``There's nothing to indicate the dollar has hit bottom,'' said Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. ``Evidence that writedowns are growing is a negative factor. Weak economic data still have the potential to send the dollar lower.''
The U.S. currency may fall to 95 yen this week, he forecast.
The dollar recovered some ground yesterday as stocks pared losses. The Standard & Poor's 500 index fell 0.9 percent yesterday, paring a drop of as much as 2.4 percent.
The dollar's decline against the yen may stall this week, said Hiroshi Koga, head of the foreign exchange department of Athena FX Co., a Tokyo-based brokerage that handles 3.8 billion yen ($39 million) in customers money. A so-called candle chart, that displays a currency's high, low, open and close for each day, indicates a recovery, said Koga.
``The dollar selling versus the yen was overshot,'' said Koga. ``It will likely rebound to 99 yen in a few days.''
The candle chart yesterday showed a so-called ``long lower shadow and a short upper shadow,'' a formation that signals selling of the dollar may fade. Separately, the dollar's 14-day relative strength index against the yen was at 21.2 today. A level below 30 signals losses may be excessive.
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