[Shadow_Group] Fw: Foreigners May Reduce Holdings

[shadowgroup-l at lists.resist.ca]

Bloomberg.com

Dollar Heads for Weekly Decline; Foreigners May Reduce Holdings 
Nov. 26 (Bloomberg) -- The dollar is poised for a seventh straight weekly
drop against the euro, its longest losing streak in 10 months, on concern
foreign investors and central banks may reduce holdings of U.S. assets. 

Bank of England Chief Economist Charles Bean said in a speech late
yesterday international investors are unlikely to keep buying U.S. assets
indefinitely, resulting in a ``possibly substantial'' drop in the dollar.
The U.S. currency fell to a record earlier today after China Business
News reported Chinese central bank official Yu Yongding said his country
had trimmed its holdings of U.S. Treasury securities. 

``What we're seeing now is far more than just speculation; these are real
fundamental shifts in portfolio allocations from official and private
entities, and that could continue and see the dollar selling
accelerate,'' said Derek Halpenny, a currency strategist at Bank of
Tokyo-Mitsubishi Ltd. in London. 

Against the euro, the dollar traded at $1.3277 at 11:10 a.m. in New York,
from $1.3269 late yesterday, according to electronic currency-dealing
system EBS. It earlier fell to a record $1.3330. The dollar rose to
102.65 yen, from 102.46, after dropping as low as 102.01, the weakest
since January 2000. For the week, the dollar has shed 2 percent against
the euro and 0.4 percent versus the yen, its ninth straight weekly
decline. 

Echoing Greenspan 

Bean's comments to business leaders in Colchester, England, echoed those
of Federal Reserve Chairman Alan Greenspan, who said at the European
Banking Congress in Frankfurt on Nov. 19 that overseas investors may tire
of financing the U.S. current-account deficit. The U.K. holds $134.6
billion in U.S. Treasuries, according to the Treasury Department. 

``There's no reason to be brave right now'' and buy dollars, said Robert
Sinche, head of currency strategy at Banc of America Securities LLC in
New York. Given the ``tacit approval'' from policy makers that the dollar
needs to drop, ``why would you get on the other side of it?'' 

Sinche projects a dollar drop to $1.35 per euro early next year. A weaker
dollar has helped U.S. companies that sell products in Europe such as
Gillette Co., which said the U.S. currency's drop boosted sales in the
third quarter. The dollar has lost 32 percent against the euro since the
start of 2002. 

DaimlerChrysler AG, the world's fifth-largest carmaker, said the dollar's
decline against the euro will reduce the earnings of the Mercedes-Benz
luxury car division. European stocks fell today on concern about a weaker
dollar. 

`Weren't Prepared' 

``We weren't prepared for the dollar to be at this level,'' Thomas Weber,
the management board member responsible for research, told journalists at
a dinner in Frankfurt yesterday. ``It will influence the results at
Mercedes and 2005 won't be an easy year.'' 

Yu, a Chinese monetary policy committee member, denied making the
statement about reducing holdings of Treasuries. Yu said the report was
``distorted,'' in a statement on the Web site of the Institute of World
Economics and Policies of the Chinese Academy of Social Sciences, where
he is a director. 

China, the second-largest foreign holder of U.S. government debt, reduced
its holdings of U.S. Treasuries, China Business News said. The country's
central bank declined to comment on the report. China's holdings of
Treasuries rose to a record $174.4 billion at the end of September,
according to the Treasury Department. 

`Real Risk' 

``The real risk is that the sharper and the quicker the dollar falls that
these investors pull out pretty quickly from U.S. markets,'' said Mitul
Kotecha, global head of currency research in London at Calyon, the
investment banking unit of Credit Agricole SA. 

Chinese international reserve assets were a record $514.5 billion in
September, accounting for about 15 percent of the world's total,
excluding holdings of gold, according to data compiled by Bloomberg. 

Russian central bank official Alexei Ulyukayev said three days ago Russia
may trim the share of dollars held in its foreign- exchange reserves.
Russian foreign currency and gold reserves totaled $113.1 billion in the
week ended Nov. 12. 

The central bank keeps about a third of its reserves in euros and the
rest mainly in dollars, central bank Deputy Chairman Konstantin
Korishchenko said in an interview on Nov. 3. 

``There's no escaping a weaker dollar,'' said Ashley Davies, currency
strategist in Singapore at UBS AG.``A lack of faith in the dollar by
central banks reaffirms our bearish stance.'' 

UBS, the world's biggest currency trader in Euromoney magazine's 2004
poll, this week lowered its three-month dollar projections to 103 yen
from 107, and to $1.36 per euro from $1.30. 

Dollar Index 

The Dollar Index, which measures the dollar against a basket of six
currencies, fell as low as 81.42 today, the lowest since 1995, according
to data compiled by Bloomberg. The New York Board of Trade's index
averages exchange rates between the dollar and six other currencies, with
the euro accounting for 58 percent. 

The dollar trimmed some of its weekly losses today as a technical
indicator some traders use to gauge likely trends suggested the currency
has fallen too far. 

The dollar's 14-day relative strength index against the euro closed at
80.2 yesterday. Against the yen, it closed at 24.3. Levels above 70 and
below 30 suggest a currency may change direction. The index shows how
rapidly prices have risen or fallen in a given period. 

`Carried Away' 

``The market has gone a little bit carried away'' with the dollar's
slide, said Tania Kotsos, a currency strategist at RBC Capital Markets in
London. Kotsos forecasts the dollar to gain to $1.30 per euro and trade
at 103 yen at the end of the year. 

Japanese Finance Minister Sadakazu Tanigaki told reporters in Tokyo today
the currency market needs careful watching. Japan must act on any unusual
moves, Tanigaki said. The Bank of Japan, at the ministry's direction,
sold a record 32.9 trillion yen ($320 billion) in the year ended March 31
to stem the currency's gain. 

``Their rhetoric indicates that they are going to act, and I think they
will at some level below 100'' yen, said Halpenny at Bank of Tokyo
Mitsubishi. ``The key is 101.25, which is the low from November 1999''
for the dollar. 

The gap in the U.S. current account, the broadest measure of trade, was a
record $166.2 billion in the second quarter. A wider deficit means more
dollars need to be converted into other currencies to pay for imports.

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