Dollar on backfoot in Asian trade2 min read . Updated: 28 Sep 2007, 10:17 AM IST
Dollar on backfoot in Asian trade
Dollar on backfoot in Asian trade
Tokyo: The dollar remained in a trough against the euro in Asian trade Friday, 28 September, amid worries a slump in the US housing market could curtail growth and force the Federal Reserve to cut rates again, dealers said.
The euro firmed to $1.4159 in Tokyo morning trade from $1.4150 late Thursday in New York, although it eased from a lifetime record high of $1.4189 reached in intra-day trading overseas on Thursday.
The euro has been trailblazing against the greenback for the past six days on the heels of a batch of soft US economic indicators.
The single European currency eased to 163.35 yen from 163.56.
The dollar was also on the backfoot against the yen, slipping to 115.42 yen from 115.57. The US currency also hit a record low against a basket of six major currencies with the dollar index falling to 78.159.
On Thursday, second quarter growth for the world’s largest economy was revised downward from 4% to 3.8%, although still a respectable figure.
But sales of new US homes plunged to their lowest level in seven years in August, when median sales prices made their sharpest drop in 37 years.
With the soft US data, “a bit more easing (in US growth) was priced into 2008 given the slump in housing activity which looks likely to be a drag on the economy for some time to come," NAB Capital strategists wrote in a note.
Market players were looking ahead to second quarter corporate earnings set to be released beginning next week as well data on the US job market for clues as to the Fed’s next monetary action.
“Traders are focusing on the employment report next week, which would give clues to the Fed’s policy decision next month," said Yoshifumi Suzuki, a forex dealer at Hachijuni Bank.
The market widely expects the Federal Open Market Committee (FOMC) to cut its fed funds rate again at its two-day meeting beginning 31 October after it slashed rates by 50 basis points to 4.75% earlier this month.
Although Wall Street has been cheered by the last rate cut, “if the employment report shows it has impacted on corporate performance, then shares will plunge and the dollar will be seriously pressured," warned Suzuki.
The dollar can fall as low as 1.45 against the euro until the end of this year, and to the 110-yen level as well, dealers said.
Meanwhile some investor risk-appetite returned in the aftermath of mixed Japanese economic data.
Japan’s unemployment rate rose to 3.8% in August from a nine-year low of 3.6 % the previous month, worse than market expectations, although industrial output rebounded.
Core consumer prices also fell 0.1%, showing that the world’s second largest economy is still struggling with deflationary pressures and further lowering expectations that the central bank will lift ultra-low interest rates soon.
The reports “support the consensus for interest rates to remain low, suggesting that Japanese investors will continue to seek higher returns abroad," wrote NAB Capital strategists.
It was referring to so-called carry trades, under which the low-costing yen is used to fund higher-yielding currencies elsewhere, particularly the Australian and New Zealand dollars.
The Aussie rose to 101.66 yen from 101.28 on Thursday, while the kiwi shot up to 86.72 yen from 86.06.