CURRENCIES
Dollar drops on weak housing data
Market talk of trouble at hedge fund fuels dollar selling
Wanfeng Zhou, MarketWatch
Last Update: 5:05 PM ET Nov 17, 2006
NEW YORK (MarketWatch) -- The dollar fell against other major currencies Friday after a government report showed starts of new homes plunged to more than a six-year low last month and on market talk that a major hedge fund is in trouble.
The Commerce Department said housing starts fell 14.6% in October to a seasonally adjusted annual rate of 1.486 million homes, the largest percentage decline in permits in seven years. Building permits were down 28%. Economists had been forecasting a 4.5% drop in starts to 1.69 million and a 1% decline in permits to 1.62 million. See full story.
The weaker-than-expected data "support our view that the Fed will likely take out some insurance against a 'hard landing' by easing rates in 2007," said Michael Carey, chief economist of North America at Calyon Corporate and Investment Bank. "The slump in homebuilding is consistent with the very high level of homes-for-sale on the market."
Late in New York, the dollar was quoted at 117.68 yen, compared with 118.14 yen late Thursday. The euro changed hands at $1.2824, compared with $1.2798.
On the week, the dollar gained about 0.2% against the euro and 0.1% versus the yen.
The pound traded at $1.8951, compared with $1.8885. The dollar was at 1.2440 Swiss francs, vs. 1.2474 francs.
The euro fetched 150.94 yen compared with 151.2 yen. See live foreign-exchange rates.
The Fed voted to hold overnight interest rates steady at 5.25% in late October. It was the third straight meeting with no change in monetary policy and followed rate rises at an unprecedented 17 consecutive policy-setting meetings.
Hedge fund talk weighs
Analysts at research firm Action Economics said there's talk that the hedge fund in question is bailing out of currency carry trades -- in which speculators make profits by borrowing lower yielding currencies such as the yen and the Swiss franc and reinvesting in high-yielding currencies and assets.
"Reports are the fund in question could be diverting capital to cover losses in wrong-footed energy trades," Action said. "Dealers report good dollar/yen selling from large U.S. names."
"Rumors of a major U.S. hedge fund collapse appear to be behind the dollar's dip," said Brian Dolan, director of research at Forex.com, a division of Gain Capital. But "you have to take it with a grain of salt. It smells a bit fishy to me to be honest."
G20 meeting in view
Elsewhere, U.S. Treasury deputy secretary Robert Kimmitt said China's currency will be discussed when he meets People's Bank of China governor Zhou Xiaochuan at the Group of Twenty meeting of finance ministers and central bank governors in Melbourne, Australia, this weekend.
With China's currency reserves attaining a spectacular $1 trillion, "there may be more internationally led pressure on China to further revalue its currency," said Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York.
David Gilmore, senior currency strategist at Foreign Exchange Analytics, said there likely will be discussion about the yuan, the yen and the U.S. dollar at the meeting.
"But I don't think it'll make its way in any kind of formal statement," he said. Markets will be looking for "comments from officials attending the meeting for clues as to what's been decided."
The event may pose "some downside risk for the dollar, but there won't be a repeat of the April meeting," he added, referring to the sharp decline of the U.S. currency in April sparked by the Group of Seven industrial nations' statement that "greater exchange-rate flexibility is desirable in emerging economies ... especially China, for necessary adjustments to occur."
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