Dollar Falls to Lowest Since '95 Versus Yen Before Retail Sales

The dollar fell to the lowest since 1995 against the yen on speculation U.S. retail sales growth slowed, adding to evidence the economy is entering a recession.

The currency also slid to a record low against the euro as brokerages including ABN Amro Holdings NV and Westpac Banking Corp. said Arab nations in the Middle East may consider ending their fixed exchange rates and selling U.S. assets. The dollar traded near an all-time low versus the Swiss franc as U.S. President George W. Bush said the dollar is adjusting and its decline isn't good tidings.

We are in a clear bear trend for the dollar, said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Mizuho Financial Group Inc., Japan's second-largest publicly traded lender. Signs that retail sales are falling off will expose the dollar to further declines.

The U.S. currency fell to 101.68 yen at 9:37 a.m. in Tokyo after reaching 101.10, the lowest since December 1995, from 101.79 in late New York yesterday. The dollar traded at $1.5527 per euro from $1.5551. It touched $1.5573 per euro, the weakest level since the European currency's 1999 debut. The euro fell to 157.82 yen from 158.30.

The dollar bought 1.0158 Swiss francs, just above a record low of 1.0128 reached yesterday. The British pound was little changed at $2.0268. The Australian dollar rose to 93.57 U.S. cents from 93.33 cents after data showed companies in the Southern Hemisphere country hired extra workers for a record 16th month. The Singapore dollar rose to a record of S$1.3826 against the U.S. currency.

`Real Trouble'

U.S. retail sales rose 0.2 percent in February after a 0.3 percent rise in the previous month, according to a Bloomberg survey. The Commerce Department will release the data later today in Washington. Crude oil in New York touched $110.20 a barrel, the highest intraday price since the futures began trading in 1983.

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined to a record low of 72.20 yesterday and was last at 72.30.

The dollar looks in real trouble and there is no obvious resistance level against the euro, said Greg Gibbs, a currency strategist at ABN Amro in Sydney. I don't think you can pick a level for where it will stop.

Middle East, China

The Central Bank of Jordan is reducing the amount of dollars in its foreign reserves because of the declining value of the U.S. currency and the need to service debt, Deputy Governor Faris Sharaf said yesterday in an interview in Amman, Jordan. Sharaf would not provide a break down of the bank's reserves, totaling around $7 billion. The Jordanian dinar has been pegged to the dollar since October 1995 at an average price of 0.709 fils.

A Qatar central bank official denied an Emirates Business 24/7 report that Gulf-region policy makers will consider currency revaluation when they meet next week. The dollar's 10 percent drop against the euro last year has stoked inflation in the region.

China wants to invest more of its reserves abroad, Minister of Commerce Chen Deming said yesterday. China's reserves are the world's largest at $1.5 trillion.

We're probably going to remain in the situation where long-term money moves away from the dollar, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. `There is a lot of discussion in the market about China. There's also a lot of discussion about the Middle East dropping their dollar pegs. They're looking for an alternative store of wealth.

The U.S. currency may weaken below 100 yen, he said.

`Adjusting'

U.S. President George W. Bush said the dollar is adjusting. and its decline isn't good tidings for proponents of a strong dollar. Bush also reiterated his commitment to a strong dollar, in an interview with the U.S. Public Broadcasting Service to be aired later today.

Bush's comments were about as lukewarm as you can get, said Brian Dolan, research director at Forex.com, a unit of currency trading firm Gain Capital in Bedminster, New Jersey. Some may have interpreted his `adjusting' comment as tacit acceptance that we're in a broad-based dollar devaluation.

The dollar also fell as firms from Citigroup Inc. to Goldman Sachs Group Inc. said yesterday the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

U.S. Rates

Traders bet the Fed will cut its rate as much as 0.75 percentage point on March 18 to avert a recession. The likelihood of a reduction to 2.25 percent was 76 percent, according to futures on the Chicago Board of Trade. The balance of bets is on a cut to 2.5 percent.

The Fed's measures are not a panacea, more like an aspirin for the dollar, analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note. There is a reasonable risk that this Fed move reflects the depth of their concern with U.S. asset markets.

The dollar may decline to $1.57 per euro this month, according to a Merrill Lynch forecast released March 6.