London, March 25 (Bloomberg) -- The dollar had its biggest decline against the yen in five weeks and fell against the euro as concern mounts the war in Iraq won't end soon. ``It's becoming apparent the war will be more protracted, more costly and more damaging politically for coalition leaders and it's undermining the dollar,'' said Adrian Cunningham, who helps manage $22 billion at Abbey National Plc in Glasgow, Scotland. He's ``slightly short'' of dollars and favors the yen in coming weeks. He also likes the Polish and Hungarian currencies.
The dollar declined to 119.68 at 10:07 a.m. in London, from 120.74 late yesterday, its biggest drop since Feb. 18. It weakened to $1.0701 against the euro from $1.0644. The dollar yesterday had its biggest decline against the euro since Nov. 7, and has lost almost 4 percent in the past three months. Air Marshall Brian Burridge, the commander of U.K. armed forces in the Persian Gulf, said today the war in Iraq won't be over quickly as allied forces fought elements of Saddam Hussein's Republican Guard near the capital Baghdad. The U.S.'s CBS News said Iraq authorized troops to use chemical weapons. A longer Iraq war may hurt the dollar because of the drag on U.S. business and consumer confidence, analysts said. An index of consumer confidence probably fell for a fourth month in March to 62, its lowest in almost a decade, based on the median of 56 forecasts in a Bloomberg News survey, a report due at 3 p.m. London time may show.
Business spending isn't likely to pick up until ``broad and pervasive uncertainties'' about war, terrorism and oil prices dissipate, Atlanta Federal Reserve Bank President Jack Guynn said yesterday. Change Tactics U.K. Defense Secretary Geoff Hoon said yesterday British and U.S. troops may have to change tactics in their drive toward Baghdad after facing guerrilla attacks in southern Iraq. Since the fighting began March 19, U.S. and U.K. military officials have confirmed 27 deaths among coalition troops. ``Coalition forces may see further tough times, weighing on the dollar,'' said Shohgo Nagaya, foreign exchange manager at Nomura Trust and Banking Co. in Tokyo. ``This suggests that the war may not be as easy as some had predicted.'' The dollar may fall to 119.50 yen this week, he said. The Iraq war also may hurt the dollar by making U.S. assets less attractive. The world's biggest economy needs to bring in about $1.5 billion a day from outside the nation to offset the deficit in its current account, a measure of international trade, and sustain the dollar's value. The deficit widened to a record $136.9 billion in the three months ended Dec. 31.
Growing Deficit
U.S. President George W. Bush will ask Congress for $74.7 billion in extra spending this year to cover the costs of the Iraq war, humanitarian aid and homeland security, the White House said. The funds will bring the U.S. deficit for the current fiscal year close to a record $400 billion, an administration official said. ``The large budget deficit may make it harder for Bush to press for a tax cut to stimulate the economy, which will be one of negative factors for the dollar,'' said Kazuhiro Takeuchi, senior manager of the trading group at Mizuho Corporate Bank Ltd. in Hong Kong. The yen gained support after the Bank of Japan refrained from boosting its monthly bond purchases, which would have diluted the value of the currency by pumping more money into the banking system. Policy makers, meeting for the first time under Governor Toshihiko Fukui, also decided to increase purchases of shares from banks by half to 3 trillion yen ($25 billion.) ``Volatility of stock markets has increased recently and we conclude that we need to boost our efforts to help banks avoid stock investment risk,'' the central bank said. ///www.quote.bloomberg.com