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Dollar Weakens After Yellen Says
Current Account Gap May Widen

By John Brinsley
Bloomberg News Service
Friday, September 10, 2004

TOKYO -- The dollar headed for its biggest losing week
in five versus the euro in Asia after Federal Reserve
Bank of San Francisco President Janet Yellen said the
U.S. current account deficit will expand should the
dollar stay near its current levels.

The gap in the current account, the broadest measure
of trade, is "enormous" and "with the dollar remaining
roughly where it is relative to other currencies, this
trend is likely to exacerbate," Yellen said. The U.S.
trade deficit in July was the second-highest on record,
a report today may show.

"She was just speaking the truth," said Thomas
O'Malley, head of global currency portfolio management
in San Francisco at Barclays Global Investors, which
has over $1 trillion under management. "The market will
put 2 and 2 together, and a weak trade deficit would be
difficult for the dollar to swallow. The dollar's exhausted
its attempts over the past couple of days at the top side
and is going lower."

Against the euro, the dollar fell to $1.2247 at 8:27 a.m.
in Tokyo, from $1.2213 late yesterday in New York,
according to EBS, an electronic foreign-exchange
dealing system. The U.S. currency also fell to 109.43
yen, from 109.68. The dollar was down 1.5 percent
against the euro and 1 percent versus the yen this

The yen also may rise on expectations a report today
will show the economy grew 3.4 percent last quarter,
double the previous estimate, according to the median
estimate of 21 economists surveyed by Bloomberg

A report yesterday showed overseas investors bought
the most Japanese stocks in the week ended Sept. 3
than any time since mid-June. Japan's gross domestic
product report is due out at 8:50 a.m. Tokyo time.

"We're still reasonably positive on Japan," Barclays
Global's O'Malley said. "Positive investor inflows should
continue," boosting the yen.

The U.S. current account deficit widened to a record
$144.9 billion in the first quarter, equivalent to 5.1
percent of gross domestic product, as companies
imported more to meet the demands of a stronger

The U.S. trade deficit narrowed in July to $51.5
billion, from a record $55.8 billion in June, based
on the median estimate of 66 economists surveyed
by Bloomberg News. The Commerce Department is
set to release the data at 8:30 a.m. in Washington.

Yellen made her comments in response to a
question after making a speech in Seattle

"With the dollar already on the defensive, the perception
among some is that she may be advocating a weaker
dollar policy and that encouraged selling," said Robert
Lynch, a currency strategist in New York at BNP
Paribas, France's second-largest bank by assets.

In other trading, the dollar fell to 1.2575 Swiss francs,
from 1.2617 francs. The British pound rose to $1.7897,
from $1.7859.

* * *

Stable Dollar May Mean Bigger Deficit,
San Francisco Fed's Yellen Declares

By Reuters
Thursday, September 9, 2004

SEATTLE -- If the dollar's value remains steady, the
record U.S. current account deficit will widen over the
long run, Federal Reserve Bank of San Francisco
President Janet Yellen said on Thursday.

"It seems to me over the very long term ... that with
the dollar remaining roughly where it is relative to
other currencies, this trend is likely to continue to
exacerbate, to go from 5 percent (of gross domestic
product) current account deficits to higher levels,"
she said.

In June the trade deficit soared to a record high
$55.82 billion, underscoring the huge U.S. demand
for foreign products as well as its reliance on foreign
capital to fund consumption.

Yellen, responding to questions after a speech at a
Fed-sponsored luncheon, said financing the massive
deficit means borrowing from abroad, adding:
"Ultimately escalating borrowing over a matter of
decades is an unsustainable trend."

While Yellen said she was discussing a 10- to
20-year horizon for the deficits and the dollar, "I
believe that (the current account deficit) has to turn
around and has to involve the dollar."

* * *

U.S. Treasury Chief Backs Strong Dollar

By Reuters
Thursday, September 9, 2004

WASHINGTON -- U.S. Treasury Secretary John
Snow on Thursday declined to comment on a
two-year downtrend in the dollar against the euro
and yen and reiterated his support for a strong

"One thing that I don't do as Treasury secretary
is comment on relative values of the various
currencies," Snow said in an interview on the
CNBC cable television network. "But I often
reiterate our policy, which is the policy of a
strong dollar, a policy that we've stood behind
since my first days in office."


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