London, April 30 (Bloomberg) -- The dollar fell to its lowest level in more than four years against the euro on speculation employment and manufacturing reports this week will highlight the U.S. economy is struggling to rebound. The dollar dropped to $1.1127 per euro at 10:10 a.m. in London from $1.1035 yesterday. It earlier fell as low as $1.1137, the weakest since Feb. 19, 1999, and is headed for a ninth consecutive losing month against the euro. The dollar shed 5.5 percent against the euro this year and almost 19 percent in the past year. It weakened to 119.48 yen from 120.09 late yesterday.
U.S. manufacturing shrank as the world's biggest economy shed jobs this month, economists surveyed by Bloomberg News expect reports tomorrow and Friday to show. Concern about the economy, the current account and budget deficits, and lower interest rates than in Europe ensure the dollar won't recover soon, investors said. ``There are important numbers coming and I'd expect the dollar to continue its trend lower,'' said Matthew Tatnell, who helps oversee the equivalent of $173 billion at Morley Fund Management. ``With investors buying yield and the problem with the deficits, there's no good news on the dollar's fundamental problems.'' He expects the dollar to trade at $1.14 at year-end. Concern the U.S. job market isn't improving overshadowed a report yesterday that showed consumer confidence jumped the most in 12 years this month, analysts said.
Greenspan
Signs the economy isn't recovering may boost expectations the Federal Reserve will lower its key rate from a 41-year low of 1.25 percent in coming months, cutting returns on dollar-denominated deposits. The equivalent rate in Europe is 2.5 percent. ``After the end of the war in Iraq, people were too optimistic'' about the U.S. economic outlook, said Sabrina Jacobs, a currency strategist at Dresdner Bank AG in Frankfurt. ``Investors are going to have to reassess that view'' and realize the economy's prospects are dim. Dresdner expects the Fed to pare its main rate by a half-percentage point in June, weighing on the dollar, she said. Federal Reserve Chairman Alan Greenspan today will tell members of Congress whether he still expects growth to accelerate now that the Iraq war is over. The testimony, to the House Financial Services Committee at 10 a.m. Washington time, will give investors, consumers, and corporate executives an important clue to the direction of interest rates.
Current Account Deficit
A faltering recovery makes it harder for the U.S. to attract the $1.5 billion a day needed to offset the deficit in its current account, the broadest measure of international trade, and maintain the dollar's value. The economy ``needs to grow a lot faster to fund that deficit,'' Chris Loong, a manager of foreign exchange hedging at AMP Global Investors in Sydney, told Bloomberg Television. ``It's a big part of why the dollar is weakening, and we expect it to weaken further'' to $1.15 per euro by the end of the year. AMP Global has about $155 billion under management. Japan's currency briefly pared some gains after the central bank raised the target for reserves it makes available to lenders and other financial institutions, suggesting it will put more cash into the financial system, diluting the currency's value. BOJ Governor Toshihiko Fukui said he shared investors' concern about a ``possible crisis'' after the Nikkei 225 Stock Average fell to a 20-year low. The bank increased its target to between 22 trillion yen ($184 billion) and 27 trillion yen from a maximum of 22 trillion yen. It kept monthly government bond purchases unchanged at 1.2 trillion yen. The central bank's move ``is mildly positive for the dollar against the yen, in that this policy is designed to add more capital to the domestic economy,'' said Robert Rennie, a currency strategist at Westpac Banking Corp. in Sydney.
Factory, Employment Reports
The Institute for Supply Management's factory index will probably show a reading of less than 50 in April, indicating U.S. manufacturing is shrinking, according to economists surveyed by Bloomberg News. The unemployment rate probably rose to 5.9 percent, close to an the eight-year high of 6 percent, while payroll employment fell by 58,000 jobs in April, economists predict reports Friday will show. A ninth declining month against the euro would be the dollar's longest losing streak since a 10-month drop against the deutsche mark ended in October 1994. ``The outlook is not very positive for the dollar,'' said Naomi Fink, a Singapore-based currency strategist at UBS Warburg LLC, the second-largest trader in the daily $1.2 trillion-a-day foreign exchange market. The jobless report ``should keep the pressure on the dollar versus the euro.''
Deficit vs Surplus
The shortfall in the U.S. current account widened to a record $136.9 billion in the fourth quarter of 2002, or 5.2 percent of gross domestic product. Europe had a current account surplus of about 1.3 percent of GDP in the fourth quarter. Japan also has a surplus. The combination of the U.S. current account deficit and the budget deficit is a sign the U.S. may not be able to attract investment from abroad, analysts said. Goldman, Sachs & Co. economists predict the budget gap may reach $425 billion in the year through September. The larger budget deficit may lead the government to sell more Treasuries, causing prices of the securities to fall. ``The major concern for the markets is the twin deficits, and the extent the fiscal situation in the U.S. has deteriorated,'' said Jake Moore, a currency strategist in Tokyo with Barclays Plc. As a result, ``the dollar has collapsed,'' and may weaken to $1.13 per euro in the next month, he said. //www.bloomberg.com