Dollar Broadly Higher Against Yen on Japanese Bank Woes
Dow Jones Newswires
Monday November 18, 9:26 am ET
NEW YORK -- The dollar was broadly higher against the yen, rising above the 121 yen mark for the first time in about 10 days, and modestly firmer against the euro and its other major rivals Monday in New York.
The greenback's better tone was primarily driven by some weakness in the yen centering on the woes of Japan's banking sector.
In morning trading, the dollar was at 121.25 yen, up from 120.45 yen late Friday in New York. The euro was trading at $1.0070, down from $1.0091 late Friday. Against the Swiss franc, the dollar was at 1.4571, up from 1.4525 late Friday, while sterling was at $1.5793, little changed from $1.5794.
Mitigating the extent of the dollar's rally, the threat of geopolitical turmoil remains in the background that is potentially detrimental.
Despite a lull as U.N. weapons inspectors attempt to establish the state of Iraq's military capacity, a low grade state of military confrontation persists. U.S.-led coalition warplanes Monday bombed an air defense site in northern Iraq after being fired upon, the U.S.-European Command said in a statement.
Meanwhile, the foiled hijack attempt on an Israeli airliner over the weekend served as a reminder there are real security threats to air travel.
In part, the dollar's gains also stemmed from the reflection that last week's U.S. economic releases were, on balance, better than expected, said Shahab Jalinoos, currency strategist with UBS Warburg in London.
Short dollar positions -- effectively, bets that the dollar will decline -- are "at relatively extreme levels, while anecdotal evidence shows that much of the dollar's recent weakness has been driven by speculative money, which can be fickle and turn around quite quickly," Mr. Jalinoos said. A recent pickup in corporate debt issuance, which would tend to encourage inflows of portfolio investment into the U.S., could also prove to be supportive of the U.S. currency, he added.
Sentiment surrounding the yen, by contrast, is poor, currency strategists said. The Japanese currency is expected to remain under pressure ahead of the Bank of Japan's latest policy meeting, which is expected to end Tuesday with more details of how it plans to provide increased liquidity.
Shares in UFJ Holdings and other major Japanese banks fell Monday on rekindled fears about the country's financial system, though some analysts say the recent selling has been overdone.
Early Monday in Asia, international credit rating agency Standard & Poor's placed its 'A-2' short-term ratings on UFJ Bank, UFJ Trust Bank, and their related entities (collectively UFJ Group) on CreditWatch with negative implications, reflecting growing concerns over the group's liquidity risks.
The hammering of bank stocks underscores deep concerns in the market about the health of Japan's banks and growing expectations that -- with the nation's bad- loan mess still crippling lenders and the value of their shareholdings plunging -- the government will eventually have to formally nationalize or at least essentially take control as a major shareholder in a major bank.
Japanese government bond prices were being weighed down by concern that Japanese banks, which hold some 81.4 trillion yen worth of JGBs, may sell them to raise cash. That, together with speculation about an increasingly larger supplemental budget from the government was dragging on the yen, wrote Marc Chandler, chief currency strategist with HSBC in New York.
In the euro zone, the European Central Bank's monetary policy remains of key importance to the euro's performance.
A higher than expected euro-zone consumer price index for October, accelerating to 2.3% from 2.1% in September, has raised the question of whether the ECB will go ahead and cut interest rates next month. Despite the central bank's hawkish record of defending an inflation target in order to guard against price pressures, many strategists still expect a rate cut at the ECB's Dec. 5 meeting, noted Mr. Chandler of HSBC.
-John Parry, Natsuo Nishio and Nicholas Hastings of Dow Jones Newswires contributed to this report. |
