Reuters: US Dollar Report: FOREX-Dollar, yen slide as US data fuels safe-haven exit

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FOREX-Dollar, yen slide as US data fuels safe-haven exit Oct 1st 2012, 19:35 Mon Oct 1, 2012 3:35pm EDT * Fed's Bernanke defends loose monetary policy, market steady * Likely Moody's downgrade could push Madrid to seek bailout * Euro zone PMI not as bad as earlier estimates * U.S. manufacturing sector rises in September By Gertrude Chavez-Dreyfuss and Daniel Bases NEW YORK, Oct 1 (Reuters) - The dollar fell from a three-week high and the yen weakened broadly on Monday as a rise in U.S. manufacturing activity prompted a sell-off in safe-haven currencies. The U.S. manufacturing sector last month grew for the first time since May, getting a boost from new orders. Also giving risk appetite a boost was an increase in Germany's purchasing managers' index (PMI), which grew last month to its highest reading since March, although it was still below the expansionary 50-mark. "While the U.S. economy experienced a 'soft patch' in growth during Q3, today's report adds to evidence of a modest recovery in Q3," wrote Michael Woolfolk, senior currency strategist at BNY Mellon Global Markets in New York. "Global markets reacted more strongly than expected to this second-order release, suggesting sensitivity to upside U.S. economic surprises," Woolfolk wrote clients. U.S. Federal Reserve Chairman Ben Bernanke defended the loose monetary policy encompassed in its controversial bond-buying plan, saying it was necessary to support a flagging economic recovery. Bernanke added the central bank still expects the economy to grow but not quickly enough to bring down unemployment. He also said he does not see an inconsistency between the Fed's policies and maintaining a strong U.S. dollar. Factory activity in China also contracted, in a sign the world's No. 2 economy lost momentum for a seventh consecutive quarter. China has been a crucial engine of global growth. The dollar index, a gauge of the greenback's performance against six major currencies, was last down 0.14 percent at 79.825 after rising as high as 80.147, its strongest level since Sept. 11. Speculators boosted bets against the safe-haven dollar in the latest week to the highest in more than a year, according to data from the Commodity Futures Trading Commission released on Friday. The euro, on the other hand, rallied from three-week lows against the dollar, boosted mainly by the German data and decent manufacturing numbers from debt-plagued Spain and Italy. But traders said gains could be limited by concerns about a possible credit rating downgrade for Spain. The euro rose 0.19 percent to $1.2883, although some analysts said its resilience was due less to confidence in the euro zone than to dollar weakness after the Fed unleashed its third round of monetary easing last month. The common currency hit a three-week low of $1.2802 in Asian trade, breaking below support at its 200-day moving average at $1.2823. A daily close below $1.2823 could signal further weakness ahead. Camilla Sutton, chief currency strategist at Scotia Capital in Toronto, said she expects the euro to trade in a range of between $1.28 to $1.32 against the U.S. dollar until there is a catalyst sufficiently large to push it out. She added that Scotia's year-end target was $1.26 for the currency pair. Investors are awaiting the outcome of credit agency Moody's review of Spain's sovereign rating. Europe's fourth largest economy may be downgraded to junk status, piling pressure on it to seek an international bailout soon. "A downgrade could force Spain's hand in seeking a bailout and should see a relief rally in the euro," said Adam Myers, senior foreign exchange strategist at Credit Agricole. "But until that happens, weak economic data will add to the downward pressure on the euro." YEN WEAKNESS The yen, another safe-haven, also suffered a setback in the wake of the upbeat U.S. manufacturing report. The dollar edged up 0.15 percent against the yen to 78.02 yen, off a more than two-week low of 77.43 yen hit on Friday. The euro rose 0.29 percent against the Japanese currency to 100.55 yen. The Bank of Japan's quarterly tankan survey of business sentiment released on Monday showed big Japanese manufacturers expect the dollar to average around 79.06 yen in the fiscal year through March 2013. The survey also showed the mood among major manufacturers worsened in the latest quarter and was likely to stay gloomy, dragged down by weak Chinese and European demand. Link this Share this Digg this Email Reprints

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