Dollar Up vs. Yen, Market Wary, By Daniel Bases
NEW YORK (Reuters) - Dollar selling pressure eased on Thursday as investors were wary of intervention by Japan to curtail the yen's advance against the U.S. currency.
Japanese finance officials weighed in with more verbal intervention, saying they were in contact with counterparts around the globe. That implied a further willingness to intervene to slow the yen's appreciation, which could snuff out Japan's fragile economic recovery.
The dollar's rapid fall against the yen and the euro was broken by Wednesday's uptick in stock prices. Equities have largely given the dollar its direction as investors have shunned stocks, particularly in the United States.
"The dollar is taking its cue from the equity markets. If we get some stability there, the dollar will stabilize as well," said Michael Rosenberg, head of foreign exchange research at Deutsche Bank Securities in New York.
Rosenberg noted that equity markets around the world had suffered losses as asset allocations shifted from stocks to fixed-income investments, such as safe government bonds.
However, with U.S. interest rates among the lowest in the world, inflation under control and corporate bonds viewed with caution because of questionable accounting practices, cash for fixed-income investments is not findings its way into U.S. assets.
"The U.S. has the lowest real short-term interest rates in the world today. It has the third-lowest nominal interest rates. If there is a shift from equities to fixed-income and the U.S. doesn't offer attractive yields, the dollar is going to weaken," Rosenberg said.
In early U.S. trade, the dollar climbed for a second straight day against the Japanese currency, trading at 116.82 yen (JPY=), a gain of 0.45 percent from Wednesday's New York close, and 1-1/2 yen above a 17-month nadir hit on Tuesday.
The euro was slightly weaker, trading at $1.0065 (EUR=), off 0.08 percent on the day and one cent below its 2-1/2 year peak hit on Wednesday. But the euro climbed to 117.58 yen(EURJPY=R), a gain of 0.38 percent on the day.
As U.S. stocks have fallen, with the Dow Jones industrial average down nearly 15 percent so far this year, the euro has surged 13 percent against the greenback. The yen has climbed more than 11 percent against the dollar.
On Wall Street, stocks weakened slightly. The Dow Jones industrial average(CBOT:^DJI - News) was off 0.27 percent, while the Nasdaq Composite index fell 1.27 percent (NasdaqSC:^IXIC - News) and the S&P 500 lost 0.57 percent (CBOE:^SPX - News).
TRANSATLANTIC TALK
Senior Japanese Finance Ministry official Zembei Mizoguchi said on Thursday the ministry was always in contact with overseas authorities on foreign exchange matters, adding that it would take action in the market if needed.
The reference to being in touch with overseas authorities, more specific than the usual jawboning by Japanese officials to curb the yen and coming after a similar comment from Finance Minister Masajuro Shiokawa on Wednesday, caught the market's attention.
"There could be joint intervention but I think they will refrain from it while dollar/yen is steady," said Armin Mekelburg, currency strategist at HypoVereinsbank in Munich.
Japan has sold yen on at least seven days since late May, most recently on June 28, and spent an estimated $30 billion in yen.
IMM DATA
IMM floor traders said the key to currency activity remained in the U.S. stock market. They said the pits saw little to no reaction the weekly U.S. jobless claims report.
Initial U.S. jobless claims for the week ended July 13 fell by 28,000 to 379,000, the lowest in 17 months. Seasonal factors were blamed for the drop.
September euros remained confined to Wednesday's range of $1.0006 to $1.0134.
Technical analysts also were calling for the euro rally to continue without further delay.
"It's generally positive," said Tom Pawlicki, financial futures technical analyst. "We're going to trade a lot higher. There's no solid resistance. I know we're overbought, but we've been overbought for a month or two now."
Support for September euros was at $0.9956, the June 28 high, ahead of $0.9686, the July 5 low, Pawlicki said. Resistance was at the July 17 high of $1.0134 and the Jan. 21 high of $1.0230.
"Not until we can get a stock market bottom, I don't think we're going to see the dollar start to strengthen," he said.
September yen, meanwhile, extended Wednesday's losses to hit a five-session low of $0.008548. Support for the contract was at $0.008481, the June 28 high, ahead of $0.008313, the July 2 low, Pawlicki said. He put resistance at $0.008688 and $0.008796.
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