The dollar weakened in London on concern al-Qaeda will attack the U.S. in retaliation for the killing by Israeli forces of Sheikh Ahmed Yassin, the leader of the Palestinian Hamas group. An Arabic Web site claiming to be from al-Qaeda urged ``striking the tyrant of the century, America, and its allies,'' to avenge the assassination, Agence France-Presse said. Hamas issued a statement threatening the U.S., saying it ``must take responsibility'' for Yassin's death, the Associated Press said.
``People are more cautious about the dollar because the threat of a terrorist act in the U.S. is increasing,'' said Stefan Schilbe, chief economist at HSBC Trinkaus in Dusseldorf, Germany. He expects the dollar to drop below 100 yen and slide to $1.35 per euro by the end of the year. The U.S. currency fell to $1.2364 versus the euro at 7:35 a.m. in London, from $1.2328 late yesterday in New York, according to EBS prices. It dropped to 106.74 yen, from 106.88. In the U.S., the Standard & Poor's 500 Index declined 1.3 percent yesterday to a three-month low. Assets that may benefit amid crises gained, sending gold to a two-month high. Gold for April delivery climbed for a seventh day to $418 per ounce from $417.60 late yesterday in New York. The Swiss franc strengthened to 1.2540 from 1.2580 yesterday in New York, where it rose 1 percent. ``The dollar is the most vulnerable currency,'' said Minoru Shioiri, foreign exchange manager at Mitsubishi Securities Co. in Tokyo, a unit of Japan's second-largest lender. ``There's fear the killing may unfold into a bigger conflict.''
Japanese Economy
Concerns about terrorism may push the dollar lower against the yen than the euro because of the risk Europe will also be targeted, said Schilbe at HSBC. The yen also gained after a government report showed Japanese service industries grew in January at the fastest pace in almost four years. An export-led economic recovery is prompting consumers to spend more on the services that make up about three-fifths of the world's second-largest economy. Rising consumer confidence helped send the so-called tertiary index up 2.6 percent from December, the Ministry of Economy, Trade and Industry said in Tokyo. Economists had expected the index to rise 1.6 percent, according to the median of 16 forecasts in a Bloomberg News survey. ``This is quite a good number as it suggests other sectors of the economy are taking up the slack,'' said Robert Rennie, currency strategist in Sydney at Westpac Banking Corp. ``This makes the Japanese recovery more robust and is good for the yen.''
`Spur Action'
Any gain in the yen will increase speculation Japan will sell its currency, as it is reluctant to let the yen advance to 105 per dollar before the March 31 fiscal year-end, said traders including Mitsubishi Securities' Shioiri. Finance Minister Sadakazu Tanigaki said the government is ready to take action as needed. ``It's possible the authorities will come in soon, making it harder for traders to buy yen,'' said Shigehiro Kamimura, manager of the market trading department in Tokyo at Resona Bank Ltd. The yen's gain may be limited to 106.50 in Asia today, he said. Japan's economy will grow at a steady pace, supported by exports and manufacturing, Bank of Japan Governor Toshihiko Fukui said at a meeting in the lower house of parliament in Tokyo. Fukui added that the yen's rise may be a risk for the economy, given that the current recovery has been driven by exports. He also said it's necessary to consider the impact of the yen's gain on business confidence.
Fed Comments
The dollar also may weaken after Federal Reserve officials indicated they may refrain from raising interest rates this year. The Fed's target of 1 percent is half the European Central Bank's benchmark interest rate. Alfred Broaddus, president of the Federal Reserve Bank of Richmond, yesterday said the gap between U.S. job creation and growth in the workforce is widening, which is why central bank policy makers probably will keep interest rates at 45-year lows. Broaddus is a non-voting member of the Federal Open Market Committee, which sets the level of interest rates. Concerns inflation will soon accelerate are ``premature,'' meaning the U.S. central bank can afford to wait before boosting its benchmark overnight bank lending rate, said Michael Moskow, president of the Federal Reserve Bank of Chicago. ``Inflation rates are unlikely to increase significantly,'' Moskow said in a speech to risk managers in Chicago. ``With inflation low, the Fed can be patient in removing its policy accommodation.'' Moskow also is a non-voting member of the FOMC.
`Not Attractive'
The U.S. needs to attract about $1.5 billion per day from abroad to finance the deficit in its current account, the broadest measure of trade and investment, and to maintain the value of its currency. The deficit was at a record of $541.8 billion for all of 2003. The comments ``suggests the Fed may not raise rates for the time being,'' said Tohru Sasaki, chief foreign exchange strategist in Tokyo at J.P. Morgan Chase & Co. and a former Bank of Japan official. ``U.S. assets are not attractive in terms of interest rates, which continue to make it hard for the U.S. to attract enough foreign money to finance its current account deficit.'' ///www.bloomberg.com