Currency Trading Section

Dollar Declines Amid Weak Data On Consumers

By Jamie McGeever Dow Jones Newswires
28 January 2004

The Wall Street Journal PAGE C4 English

NEW YORK -- The dollar sank across the board, hitting a 3 1/2-year low against the yen, with the catalyst for the slide apparently a disappointing U.S. consumer-sentiment report.

The dollar was already under selling pressure against the yen after Japanese Finance Minister Sadakazu Tanigaki indicated that Japan might relax its defense of the dollar. The euro, meanwhile, was rising fast on the back of "an inordinate amount" of buying against the yen, said Josh Levy, president of CMC Group, a currency-trading platform in New York.

Although the Conference Board's confidence index for January rose to 96.8 from 91.7, its highest level since the summer of 2002, it didn't meet market expectations. Dealers decided to book profits from Monday's dollar gains and stop-loss sell orders were tripped against a wide range of currencies.

"This was a disappointing outcome relative to consensus expectations," wrote Ian Morris, chief economist at HSBC in New York. Economists surveyed by Dow Jones Newswires had anticipated a reading of 97.

"It was a little worse than expected and people were [already] thrown by the less hard-line stance of the Bank of Japan," said Lauren Germain, currency strategist at Bank of America in New York.

Mr. Tanigaki had told Parliament that Japan will continue take action "against speculative moves in the market and to prevent exchange rates from moving rapidly," but that authorities aren't aiming at "guiding exchange rates to certain levels, or intentionally guiding the yen lower."

Dealers interpreted this as a sign Japan accepts that its intervention can only smooth the dollar's decline, not reverse it. In late trading in New York, the dollar was at 105.64 yen, down from 106.33 yen late Monday in New York. It traded as low as 105.47 yen yesterday, a level last seen in September 2000. The euro was at $1.264, up from $1.2471 in New York late Monday and at 133.50 yen from 132.60 yen.

The dollar was at 1.2404 Swiss francs, down from 1.2571 francs in New York late Monday. Sterling shrugged off political jitters surrounding British Prime Minister Tony Blair, climbing to $1.8277 from $1.8138 late Monday. Most of the sharp swings were in the U.S. morning session shortly after the consumer index was published at 10:00 a.m. EST. Sterling was also influenced by economic developments in Britain. Already strengthening amid the market's broader dollar selloff and a growing belief the Bank of England will raise interest rates next week, the pound got another leg up after Bank of England Governor Mervyn King said that on a trade-weighted basis, sterling has been "remarkably stable" recently. This triggered stop-loss buying above $1.8250, said a dealer at a British bank in New York, and helped to overshadow a coming parliamentary vote on student tuition fees. By a slender majority of only five votes, Mr. Blair managed to avoid what would have been his first parliamentary defeat since sweeping to power in 1997.

Other currencies, such as the Canadian, New Zealand and Australian dollars, also appreciated, with the Australian dollar coming within a whisker of reaching a six-year high above 78.14 U.S. cents.

Dealers are now turning their attention to the Federal Reserve's interest-rate decision today. Most observers expect policy makers will leave rates on hold at a 46-year low of 1%, with no hint increases are likely in the near term. The meeting is expected to produce a policy statement much like the one released when the central bank last met in early December.

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