June 2 (Bloomberg) -- The dollar snapped a five-day rally against the yen on speculation a report today will show U.S. manufacturing contracted for a fourth month, limiting the Federal Reserve's scope to raise interest rates.
The U.S. currency may decline before a report on June 6 that will probably show U.S. companies trimmed workers for a fifth month. The British pound fell the most in two weeks after people familiar said Bradford & Bingley Plc, the U.K.'s biggest mortgage lender to landlords, needs to raise money from shareholders and will lower its profit forecast.
``Disappointing economic data may encourage dollar selling, particularly against currencies where interest rates are more likely to rise,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The rate differential is likely to work against the dollar.''
The U.S. currency bought 105.31 yen at 9:56 a.m. in Tokyo from 105.52 yen at the end of last week. The dollar traded at $1.5554 against the euro from $1.5554 late in New York on May 30. The euro was at 163.80 yen from 164.15 yen. The dollar may fall to $1.56 per euro today, Soma forecast.
The pound fell 0.3 percent to $1.9758 and declined to 78.72 pence per euro versus 78.46 late last week. Bradford & Bingley Chief Executive Officer Stephen Crawshaw quit yesterday citing health reasons. TPG Inc., a leveraged buyout firm, is in talks to buy a 20 percent stake, two people familiar with the discussions said. Bradford & Bingley plans to raise an additional 250 million pounds ($494 million) from shareholders, the people added.
`Subprime-Related Losses'
``Amid thin trading this morning, the pound fell sharply because of this news,'' said Kenichi Nishii, manager of the foreign-exchange trading department at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo, a unit of Japan's biggest publicly traded lender. `There is some talk about a profit warning, raising concern over subprime-related losses in the U.K.''
The currency will decline to 81 pence per euro in two weeks, Nishii said.
The Australian dollar bought 95.48 U.S. cents from 95.59 cents late in New York. The Reserve Bank of Australia will keep its benchmark rate at a 12-year high of 7.25 percent when it announces its decision tomorrow at 2:30 p.m. in Sydney, according to a Bloomberg News survey.
The Institute for Supply Management's factory index, due at 10 a.m. New York time, fell to 48.5 in May from 48.6 in the previous month, according to a separate survey. That would be the fourth month below fifty, indicating a contraction. U.S. nonfarm payrolls declined by 60,000 workers, according to another survey conducted before the Labor Department report.
Fed Futures
Futures on the Chicago Board of Trade on May 30 showed a 26.8 percent chance the Fed will raise its target rate by a quarter-percentage point to 2.25 percent on Sept. 16, down from 33.6 percent the previous day. The central bank has cut rates seven times since September. Japan's benchmark rate is 0.5 percent and Europe's is 4 percent.
Pension funds, mutual funds and insurance companies bought more dollars than they've sold this year, according to State Street Corp. and Bank of New York Mellon Corp., the largest money managers for institutions. That's significant because speculators such as hedge funds raised bets against the greenback by 36 percent, data from the Commodity Futures Trading Commission in Washington show.
Pension Funds
History indicates institutional investors may be on to something. The dollar gained in 71 percent of the quarters over the past decade when they were net buyers, according to Boston- based State Street. They bought more than they sold in all of the quarters when, like now, benchmark interest rates were below inflation and the current account deficit, the broadest measure of trade, exceeded 3 percent of the economy.
``The dollar can do quite well in this slow-growth environment,'' said Richard Batty, global investment strategist at Standard Life Investments in Edinburgh, a mutual and pension fund that manages the equivalent of $283 billion. ``We've had for some time a positive position on the U.S. dollar.''
U.S. Treasury Secretary Henry Paulson said yesterday Middle East leaders haven't indicated concerns with their fixed exchange rates to the dollar and understand that abandoning the peg would have little impact on rising prices.
``There's quite an awareness that the dollar peg does not influence inflation to a significant degree,'' Paulson told reporters en route to Abu Dhabi after meeting with Qatari central bank Governor Abdullah Bin Saud al-Thani and Prime Minister Sheikh Hamad bin Jasim bin Jaber al-Thani in Doha. ``Ending the peg is not the solution to the inflation problem.''
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net
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