Reuters
BOJ Buying Fear Leaves Dollar Lower
Tuesday May 20, 9:54 am ET
By Javier David
NEW YORK (Reuters) - The dollar was little changed against the euro and yen on Tuesday, encumbered by pessimism about the U.S. economy but supported by traders' fears that the Bank of Japan may sell its currency to prevent the yen from rising.
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The U.S. currency was roiled by recent comments by Treasury Secretary John Snow that suggested the Bush administration is unconcerned by the dollar's sharp decline, and dealers say that Japanese authorities have aggressively intervened to stymie yen gains made on the back of the dollar's fall.
Using Japanese financial institutions as their designates, Japan has sold its currency to prevent its strength from undercutting exports and crimping a halting economic recovery.
Such speculation on Tuesday prevented the dollar from revisiting Monday's four-year low against the euro and a two-year low versus the yen. Though solid confirmation of BOJ activity was scant, dealers erred on the side of caution.
"People are still a bit wary about being short dollars with the BOJ/MOF (Ministry of Finance) looming," said Scott Schultz, a trader at Brown Brothers Harriman in New York. "Whether or not they intervene, Japanese banks will try to push it a bit higher and it will be perceived as intervention."
There is little on the economic docket to sate the appetites of currency traders hungry for new reasons to sell the dollar. However, Snow will testify before Congress at 10 a.m. (1400 GMT), and his comments on dollar policy may provoke a new bout of selling.
The dollar bought 117 yen in early U.S. trading (JPY=), modestly lower on the day amid talk of Japanese buying. Against the yen, the euro traded around 136.40 yen (EURJPY=), slightly lower on the day and below Monday's record high at 136.83 yen.
The U.S. currency traded around 1.2970 Swiss francs (CHF=), above Monday's low at 1.2890, its lowest since Oct. 1998.
Bank of Japan money market data released on Tuesday suggested that Japanese authorities, which did not confirm intervening on Monday, may have spent up to one trillion yen ($8.53 billion) that day to stem the yen's unwelcome rise.
DOLLAR DOWNTREND INTACT
Analysts said Tuesday's pullback was only temporary and the dollar was likely to resume its downward spiral, possibly bringing the euro back to its 1999 launch level of $1.1747 soon.
"There is nervousness in the market that the euro may fall a few times before it breaks the launch level, just as it happened when euro/dollar went through parity," said Aziz McMahon, currency strategist at ABN Amro in London.
The euro's gains, however, come at a precarious time for Europe, which economists think may be on the verge of recession. Last week, Germany, Italy and the Netherlands all reported economic contraction in the first quarter.
Though growth in the 12-nation bloc is well below that of the United States, the dollar is being undermined by the comparatively lower yields on U.S. assets, as well as burgeoning trade and budget deficits that investors have been reluctant to fund given the economy's weakened state.
Market observers were also watching for U.S. Federal Reserve Chairman Alan Greenspan's testimony in Congress on Wednesday. Earlier this month, the Fed warned about the risk of a broad and sustained fall in prices, and traders are anxious to see if Greenspan will reiterate that concern.
I do not envy AG surplus dollars create unsustainable inflation.
Using Japanese financial institutions as their designates, Japan has sold its currency to prevent its strength from undercutting exports and crimping a halting economic recovery.
Japan can't prop the US dollar they can destroy their own. |
