Dollar Extends Losses
On Job, Inflation Data
By LAURENCE NORMAN
DOW JONES NEWSWIRES
March31,20054:55p.m.
NEW YORK -- The dollar fell back modestly Thursday in another day of calm trading ahead of the release Friday of U.S. March nonfarm payrolls and the Bank of Japan's quarterly tankan survey.
Late afternoon, the euro was at $1.2957 from $1.2913 late Wednesday. The dollar was at 107.20 yen from 107.51 yen and at 1.1961 Swiss francs from 1.1997 Swiss francs. The pound was at $1.8891 from $1.8784. The euro was at 138.95 yen from 138.86 yen.
The dollar came under pressure overnight and those losses were extended early in the New York session.
Jobless claims rose1 unexpectedly, by 20,000 to 350,000 in the week that ended March 26. The increase reflected annual seasonal adjustments, in which five years of claims data were revised. February's personal income figures also increased by less than expected.
The main blow to the dollar came when the core personal consumption2 expenditures price index was reported up 1.6% from a year ago. That's inside, albeit at the upper end, of the 1.5% to 1.75% inflation forecast offered in the Fed's recent reports to Congress.
The data helped to quell recent inflation concerns and helped lift bond prices and send yields lower. That spelt dollar selling in a market that has been very focused on yield differentials in recent weeks.
However, the dollar regained its footing after the Purchasing Management Association of Chicago said its index of area business activity rose to 69.2 in March on a seasonally adjusted basis from 62.7 in February. The index had been expected to drop to 60.0.
The data came at the same time as close of trading in London. Since March 31 is the last day of the month, the first quarter and the Japanese fiscal year, there were some book-closing flows from funds that may have helped the dollar's climb, said traders.
T.J. Marta, senior currency strategist at RBC Capital Markets in New York said there were indeed increased flows around the end of London trading and that they seemed to help lift the dollar versus the yen. The effect on other currency pairs was minimal, he said.
For the rest of the session, the dollar remained in very narrow ranges versus the euro.
Currency markets could be in for considerable volatility in coming hours as the tankan and payrolls report are served up, said traders.
The tankan survey is expected to show to show that corporate sentiment hasn't changed much in the last three months, and that firms plan to increase capital spending next fiscal year. Economists surveyed by Dow Jones Newswires and Nikkei News on average expect the tankan's headline diffusion index measuring large manufacturers' business conditions will remain unchanged from December at 22, after deteriorating four points from September.
But forecasts for the index varied widely, ranging between 19 and 26, a sign that analysts have sharply differing takes on how confident corporate managers are.
RBC's Marta said that if the tankan comes in worse than expected, it could hit the already-vulnerable yen hard. He said there has been "a steady drumbeat of poor data" out of Japan in recent weeks and that this has pushed the currency on the defensive. He said the yen could see a "substantial" drop if the tankan survey feeds into increasing gloom about the currency.
The U.S. reports payrolls early Friday, with the market expecting a 225,000 increase. Sean Callow, currency strategist at New York based IdeaGlobal believed that with Treasury yields falling back in recent days, "there's plenty of room for the dollar to weaken" if the number is not strong.
He said that investors had grown too excited about the possibility of faster rate hikes after the Federal Reserve meeting statement last week. The statement pushed 10-year Treasury yields to a nine-month high of 4.69% last week and that pushed the dollar higher. However, with the 10-year yield back below 4.50%, the dollar was vulnerable.
Mr. Callow said that if payrolls comes in around consensus or below, he expects the euro to head up through $1.30. To get some modest dollar bounce, payrolls will need to increase by 275,000-300,000, he said.
RBC's Marta said the dollar could get some upside if the number is over last month's 262,000. But he agreed that if the number comes in as forecast, the dollar will come under pressure.
In a research report Thursday, Michael Woolfolk, senior currency strategist at the Bank of New York said that "unless non-farm payrolls can top 250K, it is virtually assured that we have seen the end to the current USD rally."
Among other U.S. data Friday, the University of Michigan reports its consumer sentiment index and the Institute for Supply Management's releases its manufacturing index, both for March.
Write to Laurence Norman at 3