Dollar Falls Broadly as Japan Data Weigh
Reuters, February 14, 2005
NEW YORK (Reuters) - The dollar slipped broadly on Monday after Japanese data highlighted the imbalance between Asian trade surpluses and U.S. deficits, prompting many investors to unwind bets of further gains in the greenback.
International Monetary Market futures data on Friday indicated speculators in the Chicago futures market were net buyers of dollars last week for the first time in eight months, a shift of market positioning that traders said left the dollar vulnerable to downside surprises.
"The market is long dollar for the first time in a long time, and anything that is dollar negative is going to prompt those long the dollar to react," said Thomas Molloy, a trader at Bank Leumi in New York. "The Japan data is part of it."
Around midday in New York, the dollar was trading at 105.01 yen, down 0.6 percent from late Friday in New York, and the euro was trading at $1.2972, up about 0.9 percent.
Japan's current account surplus -- the broadest measure of a country's trade in goods and services -- grew 35.1 percent in December from a year earlier to a record 1.616 trillion yen, far higher the forecast 4.5 percent rise.
This underlined the argument for a weaker dollar, particularly after news last week that the U.S. trade deficit widened to a record $617.7 billion in 2004, swelling 25 percent from a year earlier.
Dollar investors are hoping the decline in the dollar will ultimately help correct the United States' gaping trade deficit.
Meanwhile, the dollar was down 1 percent at 1.1983 Swiss francs while sterling was up about 1.2 percent at $1.8897.
Sterling enjoyed its best day against the dollar in 10 weeks after UK producer price data raised hopes of a potential pound-supporting rise in interest rates. British raw material costs rose at their fastest pace in more than four years.
RATES IN FOCUS
Hawkish comments from European Central Bank members also boosted the euro zone currency against the dollar.
In a newspaper interview, ECB Vice President Lucas Papademos said the risks to price stability had increased recently and the bank was ready to act if economic recovery added to these pressures.
Some dealers are also positioning ahead of a much anticipated appearance by Federal Reserve Chairman Alan Greenspan.
Greenspan will give twice-yearly testimony on monetary policy to the Senate on Wednesday and the House of Representatives on Thursday.
Important for currency markets is whether Greenspan again gives another optimistic spin to the U.S. current account deficit outlook, as he did in a recent speech. The Fed chief is also expected to say additional, steady interest-rate rises are on the way.
"It looks like (trading) will be short dollars on the assumption that Greenspan will be dovish" about interest rates when he speaks later this week, said David Leaver, a trader with GAIN Capital in Warren, New Jersey.
"But I think it is almost better to stay on the sidelines," he added.
Before Greenspan's testimony, the market will look to Tuesday's release of U.S. capital flows in December to see how well the country was funding its current account deficit.
It was unclear whether General Motors Corp.'s (NYSE:GM) and Fiat's (FIA.MI) dissolution of their five-year partnership would affect foreign exchange markets. The U.S. automaker will pay the Italian group 1.55 billion euros in cash to avoid buying loss-making Fiat Auto
"Cash will come from our available cash on hand," said Jerry Dubrowski, a GM spokesman.
The automaker had $23 billion on hand at the end of the 2004, but declined to say how much was available in Europe. (Additional reporting by John Parry in New York and Michael Ellis in Detroit)
