News Column

Dollar holds firm in upper 101 yen in cautious trading

June 2, 2014

Sophie Jackman

The U.S. dollar held firm in the upper 101 yen zone in Tokyo's Monday trading although it failed to keep momentum after breaching 102 yen briefly, capped by market players' cautiousness ahead of U.S. and European developments later in the week.

At 5 p.m., the dollar fetched 101.98-102.00 yen compared with 101.74-84 yen in New York and 101.63-64 yen in Tokyo at 5 p.m. Friday. It moved between 101.76 yen and 102.09 yen during the day, changing hands most frequently at 101.96 yen.

The euro was quoted at $1.3607-3609 and 138.77-81 yen against $1.3628-3638 and 138.68-78 yen in New York and $1.3611-3612 and 138.33-37 yen in Tokyo late Friday afternoon.

Factors conducive to yen selling combined in the morning, including positive Chinese manufacturing data and surprisingly bountiful stock markets on both sides of the Pacific, said Yuzo Sakai, manager of foreign exchange business promotion at Tokyo Forex & Ueda Harlow.

The Chinese government said Sunday its official Purchasing Managers' Index rose to 50.8 in May from April's 50.4, showing factory activity grew for the third consecutive month.

But the dollar flattened out against the yen in the afternoon as the impact of the factors ebbed, overtaken by a wait-and-see mood set to prevail ahead of big events later in the week and month, Sakai said.

Market forecasts are largely for the Institute for Supply Management's May U.S. purchasing managers' index, due out later in the day, to top April's 54.9, indicating an expansion in manufacturing and stoking expectations for upbeat U.S. nonfarm payrolls due this Friday, Sakai said.

"We should see U.S. Treasury bond yields rise and the dollar along with them, but even if the ISM is surprisingly bad I can't see the dollar dropping below 101.5 yen tonight, as traders are staying within a tight range amid the broader hesitant mood," he said.

Some players took a yen-selling cue from a senior International Monetary Fund official's endorsement of the currency's value, said Yuji Saito, executive director of foreign exchange at Credit Agricole Corporate & Investment Bank in Tokyo.

David Lipton, the first deputy managing director of the IMF, said Friday in Tokyo the yen's current exchange rates are in line with fundamentals.

The IMF has shifted its assessment of the yen's depreciation amid Japan's execution of its "Abenomics" economic strategy, said Credit Agricole's Saito.

The IMF's latest view is "a shift from last year's statement that it was moderately undervalued," Saito said.

Euro selling against the dollar continued on expectations the European Central Bank will roll out a package of monetary easing policies at its Thursday meeting, but "traders have chipped away at the euro so much in the past few weeks that I expect euro selling will ebb after the meeting itself," Sakai said.

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Source: Japan Economic Newswire

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