Reuters: US Dollar Report: FOREX- Dollar weakens after soft factory data, retreats from 4-1/2 yr high vs yen

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FOREX- Dollar weakens after soft factory data, retreats from 4-1/2 yr high vs yen May 16th 2013, 04:24 Thu May 16, 2013 12:24am EDT * U.S. manufacturing data puts brake on dollar's rise * Euro steady after slumping to six-week low as euro zone economy contracts * Kiwi edges up 0.1 pct as pressure from dollar eases * Yen could strengthen to 95 against dollar by June-strategist By Sophie Knight TOKYO, May 16 (Reuters) - The dollar pulled away from a 4-1/2 year high against the yen on Thursday after disappointing U.S. industrial data caused Treasury prices to rise for the first time in a week, while the euro wobbled near a six-week low. The greenback dipped 0.1 percent to 102.20 yen after the United States reported industrial production fell more than expected in April, while the New York Fed's business conditions index revealed a contraction in May. "Maybe the dollar has gained too much over the past few sessions and expectations were too high... this short-term pullback might last until tomorrow," said Masashi Murata, senior currency strategist at Brown Brothers Harriman. "But I don't think a trend for dollar selling is going to emerge. The U.S. is the only developed country that hasn't eased lately." The dollar index was steady at 83.813 after suffering a 0.6 percent fall in intraday trade on Wednesday. However, against a basket of currencies it is still up 0.8 percent on the week, after adding 1.2 percent last week. Recent chatter in financial markets about the possibility of the Federal Reserve winding down its third round of quantitative easing has put a fire under the dollar's feet. The Fed's asset purchases are tantamount to printing money, meaning that its termination would be positive for the U.S. currency. "Of course data releases will impact the dollar, but the real focus is the Fed's QE3 programme. People will be watching statements from officials today and Bernanke at the weekend very closely for hints on when they might exit," said Yoshio Takahashi, currency strategist at Barclays in Tokyo. "The data just shows that the U.S. economy is not uniformly strong, so there is uncertainty about when they could stop easing," he added. U.S. Treasuries were firm in Asia on Thursday. EURO UNDER PRESSURE The euro wallowed near a six-week low of $1.2843 hit on Wednesday after data showed France had slipped into recession, while the euro zone economy contracted for a sixth consecutive quarter. On Thursday, the common currency was 0.1 percent off late U.S. levels at $1.2869. It also moved further away from its 3-year high against the yen struck on Tuesday, dropping 0.2 percent to 131.54 yen . Some analysts see its recent gains against the yen as an overreach, particularly given that the European Central Bank said it could cut the deposit rate to zero if growth rates worsen. The Aussie, meanwhile, has lost 4.5 percent this month, exacerbated by a surprise rate cut from the central bank, while the Kiwi has dropped 3.6 percent. On Thursday, the Australian dollar eased 0.1 percent to $0.9884, while the Kiwi reclaimed 0.1 percent to $0.8246. By comparison, the yen has tumbled 17.8 percent against the dollar this year, helped by aggressive monetary easing by Bank of Japan Governor Haruhiko Kuroda. If it does not rebound in the remaining seven months of this year, the dollar would mark its best year against its Japanese counterpart since 1979, when it gained 23.7 percent. Barclays said in a report that most of the dollar's spurts against the yen have taken place outside of Asian trading hours, suggesting that local players are not the major drivers of yen weakness. "Japanese investors are buying foreign assets, but foreigners are still buying yen. Kuroda's easing has lost its potency as a market driver, and there are demerits to a weaker yen such as rising import prices," said Murata of Brown Brothers Harriman. "In fact, we think the dollar could drop back to 95 yen by the end of June, and we see the base of its year-end range as 90 yen." Link this Share this Digg this Email Reprints

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