The US dollar dropped to the lower 106 yen level on Wednesday in Tokyo as sluggish US service industry data accelerated fears about a recession in the world's largest economy. The dollar traded at 106.27-30 yen, down from 106.76-86 yen in New York and 106.98-107.00 yen in Tokyo on Tuesday.
The dollar moved between 106.20 yen and 106.86 yen, changing hands most frequently at 106.55 yen. The euro changed hands at $1.4626-4629 and 155.46-50 yen, against late Tuesday's quotes of $1.4643-4653 and 156.39-49 yen in New York and $1.4804-4806 and 158.38-42 yen in Tokyo.
At the outset of Tokyo trading, investors sold the dollar for the yen on the back of Tuesday's weaker-than-expected US service industry data, dealers said. 'With such bad results in the non-manufacturing index, there is a rise in recession concerns,' said Koji Fukaya, a senior currency strategist at Deutsche Securities Inc.
He was referring to the January non-manufacturing index released by the US Institute of Supply Management, which fell to 41.9 from December's 54.4, sharply lower than the widely anticipated 52.5. A reading above 50 signals expansion in the non-manufacturing sector while below 50 indicates a contraction.
Dealers said Fitch Ratings' move Tuesday to possibly cut its top triple-A rating on major US bond insurer MBIA Inc is another factor weighing on the dollar, as the market is increasingly concerned about the fate of US 'monoline' bond insurers.
The market has been closely watching the fate of 'monoline' bond insurers, which cover the risk of bonds or other securities defaulting, as their payments are expected to swell amid the US housing meltdown, serving as another risk factor for the US economy.
Somewhat positive news from the Wall Street Journal on Tuesday that a group of banks are in early discussions to arrange a possible bailout of bond insurer Financial Guaranty Insurance Co failed to lift market sentiment on the dollar, dealers said. Daisuke Uno, a market strategist at Sumitomo Mitsui Banking Corp, said, 'The market is beginning to acknowledge that the subprime issue and credit concerns are not totally resolved.'
The euro was also weak against the dollar and yen on signs that the euro zone economy is slowing, dealers said, referring to such data as Tuesday's weaker-than-expected euro zone retail sales. Fukaya said the yen is benefiting from a 'risk-aversion mood' stemming from the sluggish US and euro zone economies. But Uno said the euro's downside will be short-lived, citing overall good economic data in the euro zone area.
Comments
Comments are closed.