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Old 4th April 2008, 10:53 PM
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Chertkow, Once a Dollar Bull, Sees Long-Term Decline

By Agnes Lovasz

April 4 (Bloomberg) -- The dollar will fall in coming years as the U.S. seeks a weak currency to boost exports and cut its trade and current-account deficits, said Paul Chertkow, the former head of currency strategy at Bank of Tokyo-Mitsubishi UFJ Ltd.

The U.S. currency will drop to between 80 and 85 yen this quarter, the lowest level since 1995, Chertkow, who retired this week after a 27-year career in global foreign exchange, said in an interview. It will also fall to $1.65 against the euro and may trade as low as $1.70, he said.

``The dollar will go weaker over time,'' said Chertkow, 60, who correctly predicted the U.S. currency's appreciation in the 1980s, a forecast he said earned him a reputation as a dollar bull. ``The Americans like the weakness of the dollar because it improves the competitive position of the U.S., which is one of the few things going for the U.S. economy. The Americans also have to recognize there has to be weakness in domestic demand.''

The dollar, which has lost 14 percent against the yen in the past year, was at 101.96 against the Japanese currency by 5:26 p.m. in London, from 102.25 yesterday. It traded at $1.5714 per euro, from $1.5684, for a decline of 15 percent in the past year. The dollar fell to a record $1.5903 on March 17.

Chertkow is more pessimistic on the dollar than many of his peers. The median forecast of 41 strategists and analysts surveyed by Bloomberg is for the U.S. currency to hold at 102 yen and to rally to $1.51 per euro by the end of June.

Yen `Opportunistic'

Investors should favor Asian currencies, Chertkow said, because the euro has already almost doubled in value against the dollar since trading at a record low 82.30 U.S. cents on Oct. 26, 2000. Currencies such as the yen and Chinese yuan will be the biggest beneficiaries as nations in the region reduce their trade surpluses and the U.S. shrinks its deficits.

``The risk-reward is to look for currency pairs that haven't moved nearly as much as the euro against the dollar,'' he said. ``That's why I think dollar-yen is so opportunistic. The dollar will weaken further, mostly against Asian currencies.''

The yen will also gain as the Japanese become more risk averse and reduce investment in higher-yielding assets overseas.

Yuan's Gains

``The Japanese will be much more relaxed about appreciation because of the fact that the stronger yen will offset the impact on Japanese companies of higher import costs,'' said Chertkow. ``But also they'll be much more hesitant in getting involved in the currency market because of pressure from the Americans and from other Asian countries, particularly China, to allow the yen to appreciate.''

The Chinese yuan has climbed 16 percent against the dollar since the authorities abandoned a fixed-exchange rate in July 2005. The yuan, which rose to a record high of 7.0110 per dollar on March 28, may advance to 6.5 in six months, Chertkow said.

Chertkow, a Canadian by birth who adopted British nationality, spent a decade at Bank of Tokyo Mitsubishi-UFJ Ltd. in London, where he started the global currency-research team. Derek Halpenny, who worked as a senior currency strategist under Chertkow since 1998, was appointed his successor this week.

Chertkow said he will remain as a part-time adviser to his former employer while dedicating more time to golf and playing his new electronic drum set.

``Between drumming and golfing and part-time employment, I'll be very busy,'' he said. ``I started in the City in November 1974, so enough is enough.''

Coordinated Support

Chertkow is skeptical the U.S. will organize coordinated action to halt the dollar's depreciation on foreign exchanges. Speculation of a coordinated move by major central banks was fueled when the Dollar Index traded on ICE Futures in New York, which tracks the currency against those of six trading partners, dropped to a record low on March 17.

Central banks may find it politically difficult to support the dollar after lobbying China since 2000 to stop meddling in the foreign-exchange markets, Chertkow said. The Federal Reserve will keep reducing its target interest rate, cutting it to as low as 1 percent, while the European Central Bank holds its main refinancing rate at 4 percent, he said.

``The prospects of intervention are pipe dreams,'' Chertkow said. ``In circumstances where the Japanese don't have any room for maneuver, the Bush administration seems to want to have a weaker dollar and the ECB certainly isn't going to ease monetary policy anytime soon, I don't see how coordinated intervention is a viable topic of discussion.''
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