|FOREX-Dollar tumbles on signs of slowing growth|
Wed Sep 5, 2007 4:15 PM ET
(Recasts, adds comments)
By Vivianne Rodrigues
NEW YORK, Sept 5 (Reuters) - The dollar tumbled on Wednesday after weaker-than-expected employment and housing data stoked fears that a lingering credit crisis is starting to put the brakes on U.S. economic growth.
Data released earlier in the session showing pending U.S. home sales in July at their lowest since September 2001 sapped investor risk appetite and sent U.S. stocks lower.
"It's a shocker. It's downright ugly," said David Mozina, head of foreign exchange strategy at Lehman Brothers in New York. "Housing is a complete mess. You'd have to think that this is going to get worse. There's clearly no end in sight, and the broad market is going to run into selling pressure."
In late afternoon trading, the dollar had shed about 0.8 percent against the yen to trade at 115.27 yen <JPY=>, well off a session peak at 116.47 yen. The euro was 0.4 percent firmer against the greenback at $1.3659 <EUR=>.
Separate reports on Wednesday showing surprisingly weak private-sector job growth in August and a surge in layoffs by U.S. companies also prompted dealers to increase bets that the Fed may cut its benchmark interest rate target by a half-percentage point at its meeting on Sept. 18.
A 25-basis-point cut by the Fed is considered by many market participants to be a near-certainty. The current federal funds target rate is 5.25 percent.
In a regional survey on economic conditions known as the Beige Book, the Fed said financial market turbulence led to tighter mortgage lending standards and hurt housing activity. For details, see [ID:nN05235552].
"The Fed is trying to give itself some room to maneuver on Sept. 18 by stressing that so far the slowdown seems to be contained to the housing markets," said Omer Esiner, a market analyst at Ruesch International in Washington. "Still, risk aversion is rising and that's weighing on both U.S. equities and on the dollar."
The reports amplified market unease about a housing slump that has grown more severe as defaults on risky subprime mortgages have increased. It also hinted that a recent string of firm U.S. economic data may be coming to an end.
Analysts said the current atmosphere was also causing investors to shun carry trades, in which they purchase higher-yielding assets funded by low-interest loans in countries such as Japan and Switzerland.
That situation helped boost the yen against most major currencies. The euro was down 0.5 percent at 157.28 <EURJPY>.
Richmond Fed President Jeffrey Lacker told Reuters on Tuesday he would back a rate cut if the evidence pointed to slowing economic growth and diminished inflation, but warned that it was too early to be sure such a move was warranted.
Volatile U.S. and European money markets also kept investors on edge. The Fed added $8.5 billion in temporary reserves on Wednesday, and the European Central Bank said it was ready to act if a liquidity squeeze persists on Thursday.
Markets are increasingly expecting the ECB to leave euro-zone rates on hold at 4 percent when it meets on Thursday.
The ECB last lifted rates in June and had been expected to tighten policy again this month until the recent market volatility.
The Bank of Canada and Reserve Bank of Australia left rates unchanged on Wednesday, as expected. The Bank of England is seen standing pat on Thursday.
Sweden's Riksbank is the only central bank expected to lift rates this week to ease percolating price pressures.
(Additional reporting by Steven C. Johnson in New York)