The Dollar declines on that U.S financial turmoil will continue

The dollar fell against the euro and dropped against the yen on speculation the U.S. recession and financial turmoil will deepen, damping demand for the greenback. The U.S. currency weakened for a second day against the yen before a Labor Department report today that economists say will show the world’s largest economy lost more jobs in February than at any time since 1949. The greenback also declined after Moody’s Investors Service said yesterday it may cut the credit ratings of the three largest U.S. banks. The euro strengthened on speculation European investors will repatriate profits before the end of the first quarter on March 31. “A very weak employment report is likely to spur selling of the dollar,” said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “There are also worries over the U.S. banking sector.” The EUR/USD is currently trading at $1.2705 as of 8:25am, GMT.

The yen declined against 11 of the 16 major currencies on concern Japan’s political turmoil will make it harder for the government to cope with a deepening recession. Japanese prosecutors suspect a group headed by Trade Minister Toshihiro Nikai of taking illegal political donations, local media reported today. “Political uncertainty seems to be mounting and the Japanese economy isn’t showing any signs at all of improving,” said Ryohei Muramatsu, Tokyo-based manager of Group Treasury Asia at Commerzbank AG, Germany’s second-largest lender. “The yen is likely to be sold” to 124.10 per euro today, he said. Japan’s economic data has been “much worse” than expected and the government will need to revise its gross domestic product forecast soon, Finance Minister Kaoru Yosano said today. The USD/JPY is currently trading at 97.25 as of 8:55am, GMT.

The Australian dollar will tumble 17 percent against the U.S. currency by year-end as an economic slowdown worsens and commodity prices drop, Morgan Stanley said. The so-called Aussie will weaken this year to 53 U.S. cents, said Stewart Newnham, Morgan Stanley’s Hong Kong-based currency strategist. The economy unexpectedly shrank last quarter for the first time in eight years as exports slumped, increasing pressure on the central bank to resume cutting interest rates. “We believe that the downward economic momentum is only likely to increase through 2009, given the severity of the global environment,” Newnham wrote in a research note yesterday. “Australia’s negative macro-dynamic will now take over as the main driver in pushing the Australian dollar lower.” The AUD/USD is currently trading at 0.6415 as of 9:00am, GMT.

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