Dollar Expected To Drop Further Against Yen

Dollar Expected To Drop Further Against Yen.

With the global recession in full swing, investors are speculating that the American dollar may fall even further against the Japanese yen. The speculations are based on the Federal Reserve’s zero target lending rate which will reduce the demand for the dollar. The tensions in the Middle East also have speculators thinking that the supply of crude oil will also be disrupted, making the desire for the dollar drop even more. Additionally, the British pound has weakened to its lowest against the euro, dropping closer to parity levels, especially after a survey of UK estate agents and surveyors have forecast that home prices will drop more in 2009. The dollar also fell against the yen before the housing and manufacturing reports were released this week and they may show that the American economy is slipping further into recession.

According to Scott Ainsbury, a portfolio manager who helps manage $14.6 billion in currencies at the New York based hedge fund FX Concepts Inc., “The dollar is really going to struggle. There are just so many dollars in the system with this liquidity, and flushing all the banks with money is going to kill the dollar.”

The dollar traded at 90.67 yen yesterday in Tokyo after dropping 0.2%. The dollar closed at $1.3931 per euro with the euro trading at 126.21 yen after dropping 0.9%. The pound slipped against the euro for the sixth day in a row, weakening to a record 98 pence. Hometrack Ltd. stated that residential property fell 8.7% on average over 2008 and it is expected to drop an additional 10% in 2009 with another 3% drop in 2010.

The ICE’s Dollar Index fell 0.3% to 80.685 with the dollar being compared against the euro, yen, pound, Canadian dollar, Swiss franc, and Swedish krona. The highest it hit in 2008 was 88.463 on November 21, the highest it had been since April 2006. In an effort to revive the economy, the Fed cut its target lending rate to an all time low of zero in hopes of shifting its focus to debt purchases. Home prices for the 20 largest metropolitan areas fell 17.9% in October, the biggest decline recorded since 2001 according to Bloomberg.

The dollar also weakened against the euro and the Swiss franc as Israeli forces started a Gaza Strip attack on Saturday, calling up thousands of army reservists for a war against Hamas. Even with the hostilities in the Middle East, crude oil futures for February delivery rose 6.3% to $40.10 a barrel in electronic trading on the New York Mercantile Exchange. Gold for immediate delivery jumped 2.4% to $890.49 an ounce.

Senior market foreign exchange analyst for Washington’s Ruesch International, Inc., commented, “The flare-up in violence in the Middle East did contribute. It did take some funds out of dollars and into traditional safe-haven assets, like oil, gold and the Swiss franc.” The dollar’s drop against the yen in 2008 is the worst it has been since 1987.