London, Feb. 13 (Bloomberg) -- The dollar fell on speculation chief United Nations weapons inspector Hans Blix will report that Iraq has failed to reveal its banned weapons, increasing the risk of war and damping demand for U.S. assets. The U.S. currency fell to 120.97 yen at 10:10 a.m. in London, from 121.36 late yesterday. It weakened to $1.0777 per euro, from $1.0725, and has declined 6.1 percent against Europe's common currency in the past three months. ``We don't like the dollar,'' said Andrew Snowball, senior economist at Julius Baer International Ltd. ``What concerns us is who is going to be in this war and how quick will it be?'' He has been selling the U.S. currency since December.
Blix may tell the UN Security Council tomorrow that Iraq hasn't accounted for weapons of mass destruction as required under UN resolution 1441, according to Russian Deputy Foreign Minister Yuri Fedotov, who has heard a preview of the report. The threat of war may slow investment and cut demand for dollars, analysts said. A conflict with Iraq, combined with President George W. Bush's plan to cut taxes, will increase the U.S. budget deficit to a record $375 billion this year, according to Goldman, Sachs & Co., one of the 22 firms that trade with the Federal Reserve. The U.S. must attract about $1.4 billion in foreign investment a day to offset the shortfall in its current account, which measures international trade and investment.
`Very Negative'
A report by Blix showing a lack of progress in Iraqi disarmament would be ``very negative for the dollar,'' said Michael Preiss, chief investment strategist at CFC Securities Ltd. in Hong Kong. ``That sort of comment could give the U.S. justification to go to war alone,'' bearing the full cost of a war. The dollar may trade between $1.07 and $1.09 per euro in coming weeks, he said. Blix's account may further divide the Security Council, analysts said. France, Germany and Russia want inspections increased. U.S. Secretary of State Colin Powell said yesterday that he will challenge dissenters at the Security Council meeting and ask whether they are delaying to get Iraqi leader Saddam Hussein ``off the hook.'' Powell yesterday told Congress a U.S. invasion of Iraq may lead to a prolonged military conflict and heighten risks of a terrorist ``blowback'' at home. ``Concerns about terrorist attacks against the U.S. and U.K. are increasing and are weighing on the dollar,'' said Mitsuru Sahara, vice president of foreign exchange at UFJ Bank Ltd. in Tokyo.
Mizoguchi
The dollar's decline against the yen may be limited after Zembei Mizoguchi, Japan's vice finance minister for international affairs, said the ministry will ``respond appropriately when there is a sharp move in the currency.'' Japan sold about 700 billion yen ($5.7 billion) to decrease the currency's value in January. The yen weakened by almost 3 percent in the past three weeks after a 9 percent gain last year. The yen may also fall on expectations Japan's economy shrank in the three months ended Dec. 31, signaling the world's second- biggest economy may be heading for its fourth recession in a decade. The government will probably say tomorrow that gross domestic product fell a seasonally adjusted 0.4 percent in the fourth quarter from the previous three months, according to the median forecast of 41 economists surveyed by Bloomberg News. ``Japan's GDP may shrink, while there are no other reasons to buy the yen,'' said Tsutomu Soma, senior manager of trading group at Mizuho Corporate Bank Ltd. in Hong Kong. The dollar may rise to 121.50 yen today, he said.
NATO
The dollar also fell after North Atlantic Treaty Organization members failed for a third day to agree on when to supply military assistance to alliance member Turkey. France, Germany and Belgium resisted a scaled-back proposal to start sending missiles and reconnaissance planes to help Turkey prepare for a possible attack by neighboring Iraq. They say the contingency plans would imply support for a U.S.-led strike on Iraq, which they say can still be averted. The yen and the dollar may fall against the euro after International Atomic Energy Agency asked the UN to deal with North Korea's nuclear program, a move criticized by Russia, which said it is ``premature.'' North Korea in December expelled UN nuclear inspectors and last month withdrew from an international treaty preventing the spread of nuclear weapons after the U.S. and its allies halted fuel supplies. The communist nation has denounced any move to involve the UN as ``hostile,'' out of concern the Security Council may impose economic sanctions. U.S. Undersecretary of State John Bolton said last week that the U.S. won't seek to impose economic sanctions on North Korea. In other trading, the British pound rose to $1.6212, from $1.6151. The dollar fell to 1.3612 Swiss francs, from 1.3693. ///quote.bloomberg.com/