Dollar Tumble Wrecks Forecasts; Deutsche Bank Predicts Losses

Dollar bulls are in retreat after the currency's biggest quarterly drop against the euro since 2004 and the largest slump in almost a decade versus the yen.

The dollar will likely gain 1.6 percent to $1.55 per euro and remain little changed near 100 yen by the end of June, according to the median estimate of 40 analysts and economists surveyed by Bloomberg. At the start of 2008, they expected the dollar to strengthen to $1.48 per euro and 110 yen.

Deutsche Bank AG, the world's largest foreign-exchange trader, and Royal Bank of Scotland Group Plc cut their estimates last month as global credit market losses climbed above $200 billion and reports signaled the U.S. economy may be shrinking. Private foreign investors sold a net $38.2 billion in U.S. securities in January, the most since September, Treasury Department said March 17.

We now view the U.S. economy as having slipped into recession while the rest of the world slows more modestly, said John Horner, a currency strategist in Sydney for Frankfurt- based Deutsche Bank. That scenario argues for further dollar weakness, he said.

U.S. growth likely expanded 0.2 percent last quarter, compared with 0.6 percent in the final three months of 2007, according to the median forecast of 85 economists and strategists surveyed by Bloomberg.

Relative Rates

The greenback tumbled 7.6 percent against the euro last quarter to $1.5788. It plummeted 10.8 percent to 99.69 yen, the steepest drop since falling the same amount in the third quarter of 1999, as a decline in stock markets from the U.S. to Tokyo and credit market losses led investors to sell high-yielding assets funded with low-interest loans in the currency.

The Bank of Japan's benchmark rate is 0.5 percent, compared with 2.25 percent in the U.S. and 4 percent for the European Central Bank. The rate in Switzerland, another source of funds for the so-called carry trades, is 2.75 percent.

We hold a bearish dollar outlook, said Thanos Papasavvas, the London-based head of currency management at Investec Asset Management in Johannesburg. It's impossible to forecast where the bottom is going to be.

Investec, which manages the equivalent of $65 billion, decided on March 28 to keep betting against the dollar, Papasavvas said.

The dollar fell against the 16 most actively-traded currencies except the Canadian dollar, South Korean won and South African rand. It declined the most against the Swiss franc, depreciating 12.4 percent, and gained 2.7 percent versus Canada's currency, 5.9 percent against the won, 17.9 percent to the rand and was little changed per pound.

`Great Concerns'

Deutsche Bank expects the dollar will weaken this quarter to $1.60 per euro, surpassing the $1.5903 reached March 17, the lowest since the single European currency began trading in 1999. A Bloomberg survey in January showed the bank predicted the dollar would rise to $1.43 by yesterday from $1.4589.

Royal Bank of Scotland in Edinburgh, the fourth-biggest foreign-exchange trader, forecasts the dollar will trade at $1.57 per euro by June 30, after the currency exceeded its previous estimate of $1.52 by March 31.

There are great concerns about additional unrealized losses on subprime loans, the size of which we can't reasonably forecast, said Hiroaki Hoshi, who oversees the equivalent of about $5.7 billion as a senior fund manager at Daiwa Asset Management Co. in Tokyo. Once these are realized, the dollar will fall, he said.

Slowdown Spreads

Banks, brokers and hedge funds may report $460 billion in credit losses, New York-based Goldman Sachs Group Inc. predicted last month. Government and private reports this week may show the U.S. lost jobs for a third month in March and manufacturing contracted at the fastest pace in five years, according to the median estimates of economists surveyed by Bloomberg.

The U.S. currency may strengthen as a slowdown in the world's largest economy spreads to other regions, weakening their currencies, according to London-based Barclays Capital, the fifth-biggest currency trader.

Global growth is recoupling to U.S. growth and other central banks will have to start to play catch-up in terms of rate cuts, said David Forrester, a Singapore-based currency economist at Barclays, which forecasts $1.50 against the euro in three months.

The dollar rallied against the pound, gaining 2.2 percent, as the Bank of England cut rates by a half-percentage point since Dec. 6 to revive growth. The pound will weaken 0.2 percent to $1.98 by June 30, according to the survey of strategists. It closed yesterday at $1.9837.

Japan's yen, which gained 3.6 percent versus the euro in the first quarter, will likely appreciate 2.8 percent to 153 per euro by June 30, the survey showed.

There will still be most likely bad news that will come out on the global economy, said Stephen Jen, global head of currency research at Morgan Stanley in London. There's definitely a downside risk if the crisis morphs into something more extreme.

The second-largest U.S. securities firm forecasts the dollar will appreciate to $1.55 per euro and weaken to 97 yen.