Dollar Trades Near Four-Month High Before U.S. Services Report
By Ron Harui and Kosuke Goto
June 4 (Bloomberg) -- The dollar traded near the highest against the yen in more than four months before a U.S. report tomorrow that will probably show service industries expanded.
The U.S. dollar may extend six weeks of gains as traders scale back bets the Federal Reserve will lower interest rates. Stronger demand for services such as banking and retailing may add to evidence the world's largest economy is rebounding from the slowest growth last quarter in more than four years.
``U.S. economic indicators look strong and there's nothing but to buy the dollar,'' said Yuji Saito, head of the foreign- exchange sales department at Societe Generale SA in Tokyo. ``With expectations of a rate cut dwindling, the dollar will head higher.''
The dollar traded at 121.92 yen as of 11:39 a.m. in Tokyo from 122.10 in New York on June 1, when it reached 122.14, the highest since Jan. 29. It traded at $1.3445 per euro, from $1.3449.
The U.S. currency may rise to a seven-week high against the euro as the Institute for Supply Management's non-manufacturing index is projected at 55.6 in May, according to a Bloomberg News survey. Readings greater than 50 signal growth. Interest-rate futures contracts showed the odds of a cut in the Fed's overnight lending rate between banks by September dropped to 5 percent from 19 percent on May 25.
Dollar gains may accelerate should it break through 122.20 yen, where traders have orders to buy, said Saito. Traders sometimes place orders to limit losses in case bets go the wrong way. The U.S. currency may rise to 122.40 yen today, he said.
U.S. 10-year Treasuries yield 3.18 percentage points more than Japan's 10-year government bonds, the highest since May 22. The extra yield Treasuries offer over similar-maturity German bunds was 0.49 percentage point, up from 0.47 a week earlier.
Capital Spending
Japan's currency may snap two days of losses against the euro after a report showed capital spending among large companies rose 13.6 percent in the three months ended March 31 from a year earlier, the Ministry of Finance said in Tokyo. The median estimate of nine economists surveyed by Bloomberg was for investment to rise 10.1 percent.
``The data were stronger than expected, damping fears over an economic slowdown,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The report has sparked some buying of the yen,'' which may advance to 121.60 against the dollar and 163.60 per euro today, he said.
Losses in the yen also may be limited as charts that some traders use to predict movements show the currency's slide is too rapid. The 10-day relative strength index for the New Zealand dollar against the yen was 72. A level above 70 indicates the yen's fall may reverse.
The New Zealand and Australian dollars, favorites for so- called yen carry trades in which investors borrow the currency to buy higher-yielding assets, gained 7.8 percent and 6.4 percent against the yen this quarter, respectively.
ECB's Trichet
New Zealand's dollar rose to 91.06 yen, the highest in almost 17 years, before trading at 90.74 from 90.98. Against South Korea's won, the yen traded at 7.61625, near a 9 1/2-year low, from 7.61205 late in Asia on June 1.
Losses in the euro may be limited by speculation European Central Bank President Jean-Claude Trichet will suggest the bank will keep raising interest rates after this week's meeting.
ECB policy makers, due to meet on June 6, are expected to increase borrowing costs by a quarter point to 4 percent, economists unanimously predicted in a Bloomberg survey.
``The euro remains firm on prospects of further rate increases,'' Masaki Fukui, a senior economist and currency analyst at Mizuho Corporate Bank Ltd. in Tokyo, said in an interview today. ``I expect the ECB to raise rates three more times, including this week.''
Record 173
Europe's single currency may advance to a record 173 yen this year as a strengthening economy and rising rates attract investment into the region's assets, Fukui said.
The euro was at 163.93 yen from 164.16 yen. It touched an all-time high of 164.29 yen on May 29.
Interest-rate futures show investors have increased bets the ECB will raise rates three times to 4.5 percent this year. The yield on the December contract was 4.56 percent on June 1, up from 4.49 percent a week earlier. The contracts settle to the three-month interbank offered rate for the euro, which has averaged 16 basis points above the ECB's benchmark since 1999.
By Ron Harui and Kosuke Goto
June 4 (Bloomberg) -- The dollar traded near the highest against the yen in more than four months before a U.S. report tomorrow that will probably show service industries expanded.
The U.S. dollar may extend six weeks of gains as traders scale back bets the Federal Reserve will lower interest rates. Stronger demand for services such as banking and retailing may add to evidence the world's largest economy is rebounding from the slowest growth last quarter in more than four years.
``U.S. economic indicators look strong and there's nothing but to buy the dollar,'' said Yuji Saito, head of the foreign- exchange sales department at Societe Generale SA in Tokyo. ``With expectations of a rate cut dwindling, the dollar will head higher.''
The dollar traded at 121.92 yen as of 11:39 a.m. in Tokyo from 122.10 in New York on June 1, when it reached 122.14, the highest since Jan. 29. It traded at $1.3445 per euro, from $1.3449.
The U.S. currency may rise to a seven-week high against the euro as the Institute for Supply Management's non-manufacturing index is projected at 55.6 in May, according to a Bloomberg News survey. Readings greater than 50 signal growth. Interest-rate futures contracts showed the odds of a cut in the Fed's overnight lending rate between banks by September dropped to 5 percent from 19 percent on May 25.
Dollar gains may accelerate should it break through 122.20 yen, where traders have orders to buy, said Saito. Traders sometimes place orders to limit losses in case bets go the wrong way. The U.S. currency may rise to 122.40 yen today, he said.
U.S. 10-year Treasuries yield 3.18 percentage points more than Japan's 10-year government bonds, the highest since May 22. The extra yield Treasuries offer over similar-maturity German bunds was 0.49 percentage point, up from 0.47 a week earlier.
Capital Spending
Japan's currency may snap two days of losses against the euro after a report showed capital spending among large companies rose 13.6 percent in the three months ended March 31 from a year earlier, the Ministry of Finance said in Tokyo. The median estimate of nine economists surveyed by Bloomberg was for investment to rise 10.1 percent.
``The data were stronger than expected, damping fears over an economic slowdown,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The report has sparked some buying of the yen,'' which may advance to 121.60 against the dollar and 163.60 per euro today, he said.
Losses in the yen also may be limited as charts that some traders use to predict movements show the currency's slide is too rapid. The 10-day relative strength index for the New Zealand dollar against the yen was 72. A level above 70 indicates the yen's fall may reverse.
The New Zealand and Australian dollars, favorites for so- called yen carry trades in which investors borrow the currency to buy higher-yielding assets, gained 7.8 percent and 6.4 percent against the yen this quarter, respectively.
ECB's Trichet
New Zealand's dollar rose to 91.06 yen, the highest in almost 17 years, before trading at 90.74 from 90.98. Against South Korea's won, the yen traded at 7.61625, near a 9 1/2-year low, from 7.61205 late in Asia on June 1.
Losses in the euro may be limited by speculation European Central Bank President Jean-Claude Trichet will suggest the bank will keep raising interest rates after this week's meeting.
ECB policy makers, due to meet on June 6, are expected to increase borrowing costs by a quarter point to 4 percent, economists unanimously predicted in a Bloomberg survey.
``The euro remains firm on prospects of further rate increases,'' Masaki Fukui, a senior economist and currency analyst at Mizuho Corporate Bank Ltd. in Tokyo, said in an interview today. ``I expect the ECB to raise rates three more times, including this week.''
Record 173
Europe's single currency may advance to a record 173 yen this year as a strengthening economy and rising rates attract investment into the region's assets, Fukui said.
The euro was at 163.93 yen from 164.16 yen. It touched an all-time high of 164.29 yen on May 29.
Interest-rate futures show investors have increased bets the ECB will raise rates three times to 4.5 percent this year. The yield on the December contract was 4.56 percent on June 1, up from 4.49 percent a week earlier. The contracts settle to the three-month interbank offered rate for the euro, which has averaged 16 basis points above the ECB's benchmark since 1999.
**Original Source = Bloomberg.com**
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