Dollar Declines in Wake of U.S. Consumer-Confidence Data

27 January 2004  Dow Jones Business News   -  English
(c) 2004 Dow Jones & Company, Inc.


NEW YORK -- The dollar sank across the board Tuesday, hitting new three-and-a-half-year depths against the yen, with the catalyst for the slide apparently a disappointing U.S. consumer-confidence 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 sentiment 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 the dollar's gains Monday 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 97.0. "It was a little worse than expected and people were [already] thrown by the less hardline stance of the Bank of Japan," said Lauren Germain, currency strategist at Bank of America in New York, referring to Mr. Tanigaki in Tokyo.


Mr. Tanigaki 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 its yen-selling intervention can only smooth out exchange-rate volatility to slow the dollar's decline, not reverse it.


In late trading in New York, the dollar was at 105.65 yen, down from 106.30 yen late Monday in New York. It traded as low as 105.47 yen Tuesday, a level last seen in September 2000. The euro was at $1.2635, up from $1.2475 in New York late Monday, and up at 133.50 yen from 132.60 yen.

The dollar was also at 1.2405 Swiss francs, down from 1.2572 francs in New York late Monday, while sterling shrugged off political jitters surrounding United Kingdom Prime Minister Tony Blair and climbed to $1.8270 from $1.8130 late Monday. Most of the sharp swings Tuesday were in the U.S. morning session shortly after the consumer-confidence index was published at 10 a.m. EST.


Sterling was also influenced by political and economic developments in the U.K. 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 U.K. bank in New York, and helped to overshadow the upcoming parliamentary vote on student tuition fees. By an extremely slender majority of only five, 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 Tuesday, with the Australian dollar coming within a whisker of making a fresh six-year high above 78.14 U.S. cents.


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


-By Jamie McGeever, Dow Jones Newswires; 201-938-2096;

Document DJON000020040127e01r0003b