The dollar failed to make gains against the euro and yen on Tuesday despite a rally on Wall Street as players remained sceptical of chances of a strong US economic recovery.
”It shows that dollar sentiment is weak,” said Motoshi Imura, senior manager of the foreign exchange and treasury division at Bank of Tokyo-Mitsubishi. ”It’s hard to react to just a one-day rise.”
After a plunge on Friday, US share prices came back strongly on Monday with the Nasdaq Composite ending up over three percent while the Dow Jones Industrial Average rose 2,25%.
But the dollar was little moved at 124,33 yen at 0250 GMT compared to 124,33 in late New York trade.
The market remained cautious of further selling the dollar below 124 yen on fears that Japanese authorities might intervene.
The euro inched up to 94,64 cents against 94,42 in late US trade.
Against the yen, the single European currency also remained bullish at 117,67 yen against a late US level of 117,40.
Traders said the market was expected to remain quiet during Tokyo trade from lack of fresh incentives and also ahead of the Japan-Turkey World Cup soccer match which kicks off at 0630 GMT, when many businesses are likely to come to a standstill as workers watch the game on TV.
FRAGILE RECOVERIES
Later in the day, US May consumer price data and May housing starts will be released. But the main attention is on the US trade data for April and current account figures for the first quarter, both due on Thursday.
”It (the current account figure) could further eat into the weak dollar sentiment,” said Bank of Tokyo-Mitsubishi’s Imura.
Both of Thursday’s data are expected to show widening deficits.
Traders also looked towards the announcement of the Bank of Japan’s corporate sentiment ”tankan” survey on July 1.
Though the report is expected to show an improvement from the previous survey, some traders said it would not automatically trigger further yen-buying for the dollar.
Talk that the Japanese economy is recovering ”is like trying to grab a soap bubble, you don’t actually feel it”, said a trader at a European bank. ”So if the yen is bought, it won’t be the true reason.”
JAPANESE POLITICS WORRY
Some traders said there was growing wariness towards the political leadership of Japanese Prime Minister Junichiro Koizumi, and his failure to maintain a firm grip on power could change the recent weak dollar/strong yen sentiment.
”The anti-deflation package lacks specifics and his control over politics is clearly weakening,” a dealer at a major Japanese bank said.
”Though I don’t think it could immediately lead to yen-selling, this factor is the biggest risk for a change in the recent trend.”
On Monday, Japan’s ruling coalition parties agreed on policy steps to fight deflation including limited early tax cuts as a way to spark demand.
But they failed to hammer out concrete estimates of how much the tax measures — for instance incentives for corporate research and development and cuts in inheritance and gift taxes — would be worth. – Reuters