Tokyo, March 26 (Bloomberg) -- The dollar may fall after Defense Secretary Donald Rumsfeld said the war in Iraq is ``closer to the beginning than the end,'' increasing concern that the cost of the campaign will slow the U.S. economy. The U.S. currency traded at 120.12 yen at 4:14 p.m. in Tokyo, from 120.07 late yesterday in New York. It was also at $1.0647 per euro, from $1.0656. Rumsfeld at a briefing yesterday said that the war to depose Iraqi leader Saddam Hussein may take months. ``Any expectations that somehow this conflict will be resolved quickly and relatively painlessly are unrealistic,'' said Peter Clay, Sydney-based foreign exchange strategist at ABN Amro Holdings NV, the eighth-biggest trader in the $1.2-trillion-a-day currency market. ``Pressure on the dollar will accelerate.'' The currency may weaken to $1.0840 versus the euro within a week, he said.
Allied air forces bombed Iraqi units defending Baghdad, and U.S. armored columns maneuvered through sandstorms toward the country's capital, taking ``some casualties,'' Major General Victor Renuart Jr. said. The U.S.-led coalition, which earlier intended to move past Basra, Iraq's second-largest city, declared some of the city a target because of resistance there. The campaign may ``grow more dangerous in the coming days and weeks as coalition forces close on Baghdad and the regime is faced with certain death,'' Rumsfeld said.
Fight for Basra
The dollar's decline may be limited after the British Broadcasting Corp. said coalition planes bombed targets in and around Baghdad, knocking Iraqi state television off the air. ``Presumably this limits Saddam's potential for propaganda going forward and could, at a stretch, help the coalition partners garner support for regime change from the Iraqi populace,'' said Michael Jansen, market strategist in Sydney with National Australia Bank. ``The dollar was assisted by the news.'' Allied planes also bombed Iraqi Republican Guard divisions in support of U.S. armored forces, and U.K. troops killed or captured about 25 Iraqis at the Basra headquarters of Hussein's Baath Party. U.K. spokesman Colonel Chris Vernon welcomed reports of an uprising against the Iraqi regime in Basra. ``The attack on Basra and reports of the uprising are leading to some dollar buying,'' said Kaneo Ogino, head of foreign exchange trading in Tokyo at HSBC Holdings Plc. Any reports of allied success in the war ``will be dollar-positive.'' President George W. Bush yesterday said allied forces are on a ``steady advance'' to Baghdad, helping stocks to rise and limiting the dollar's decline. The Standard & Poor's 500 Index rose 1.2 percent, while the Dow Jones Industrial Average climbed 0.8 percent and the Nasdaq Composite Index gained 1.6 percent.
Bush Tax Plan
Bush this week asked Congress for $74.7 billion to cover the cost of the war. The U.S. Senate yesterday voted to slash Bush's 10-year tax cut to $350 billion from $726 billion because of concern the federal budget deficit is rising too fast. ``The longer it goes on, the more the war is going to cost the U.S.,'' said Marshall Gittler, a foreign-exchange strategist in Tokyo with Deutsche Bank AG, the third-biggest trader in the currency market. ``A drawn-out conflict is bad for the dollar.'' The Conference Board's index of consumer confidence fell in March for a fourth month to the lowest in almost a decade. Declining confidence may lead to a global recession this year, Stephen Roach, chief economist at Morgan Stanley, said in Beijing. Economists are trimming their growth forecasts. The U.S. economy will expand 2.5 percent this year after 2.4 percent growth in 2002, according to the median of 67 economists' predictions in a Bloomberg survey conducted last week. The figure compares with a December forecast of 2.8 percent.
U.S. Assets
A faltering economy will dull the appeal of U.S. assets, making it harder for the nation to attract the $1.5 billion daily it needs to offset its current account deficit, a measure of international trade and investment, and sustain the dollar's value. ``The burden of proof on the dollar is so enormous that even taking away military conflict, the dollar would be on a downward trend anyway,'' ABN Amro's Clay said. In other trading, the U.S. currency held at 1.3834 Swiss francs. The British pound fell 0.1 percent to $1.5736. The yen was little changed against the euro at 127.89. //www.quote.bloomberg.com