Lehman Brothers Holding Inc raised its one-month and three-month forecasts for the dollar versus the euro and yen on the view that the US currency may benefit from rising interest rates before resuming its decline.
The dollar gained 0.6 percent versus the euro in the past three days after the US Federal Reserve raised its target interest rate on overnight loans between banks a quarter-point to 1.5 percent on Tuesday. Lehman expects the central bank to raise its key rate to 2.25 percent by year-end.
"The dollar continues to benefit from any shift in expectations toward higher US rates," Jim McCormick, Lehman's head of global currency research in London, wrote in the firm's weekly curren-cy-strategy report.
"If the currency does stay tightly linked to Fed policy going forward, our underlying Fed view implies upside risks to the currency."
Against the euro, the dollar rose to US$1.2202 at 10:30am in London from US$1.2251 late yesterday in New York, according to EBS, an electronic foreign-exchange trading system. Versus Japan's currency, the dollar rose to 111.76 yen from 110.90 yesterday.
Lehman, the fourth-largest US securities firm, expects the dollar to fall to US$1.23 per euro in one month and US$1.25 in three months, compared to its previous forecasts of US$1.25 and US$1.27 over the same time periods.
The US currency will decline to 108 yen in one month and 105 in three months, Lehman said. The firm's previous forecasts were 106 and 102, respectively.
"We remain resolute dollar bears," McCormick wrote. He said the US may have trouble attracting the foreign investment needed to offset its trade deficit and the dollar will fall to US$1.31 per euro and 98 yen in 12 months.
Japan's currency is down 3.4 percent since reaching a three-month high of 107.14 yen in late June, on concern "surging oil prices, a weak China" and "falling global equities" would slow the country's economy, Lehman said.
"Nothing in Japan's recent data flow suggests any of these shocks are having a big impact on Japan's economy," McCormick wrote.
Japan's economy grew at a 1.7 percent annual pace in the second quarter, the government said on Friday, less than half the rate forecast by economists, as a recovery in consumer spending flagged and companies curbed investment.
Other Asian currencies also fell this week as record-high crude oil prices raise companies' energy costs and erode profit, threatening to slow economic growth and deter overseas investors.
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