Dollar stronger on drop in Japanese business confidence
April 3, 2006
Tokyo - The dollar advanced against the euro and yen in Asian trade on Monday after news of a surprise decline in Japanese business confidence, dealers said.
The dollar rose to ¥118.07 in Tokyo morning trade from ¥117.68 in New York late Friday.
The euro eased to $1.2101 from $1.2116 while rising to ¥142.76 from ¥142.70.
The Bank of Japan's closely watched "Tankan" survey showed a drop in the headline index of sentiment among big manufacturers to plus 20 in March from plus 21 in the December survey.
The market had been looking for a rise to plus 23 but took the view that the dip in sentiment would not derail the overall economic recovery.
"Disappointment over the softer Tankan report triggered yen-selling," said Kenji Kobayashi, a senior forex manager at the Bank of Tokyo-Mitsubishi UFJ.
"But the Tankan was not significant enough to break the dollar-yen trading range of 116-119 yen," he added, noting that the US currency had met resistance at around the ¥118 level.
Given the reaction of other financial markets, such as a rise in share prices, the foreign exchange market appeared to have been over-optimistic about prospects for the Tankan survey, Kobayashi said.
Japanese share prices rose to fresh five-year highs with the benchmark Nikkei-225 index up 245.10 points or 1.44 percent to 17 304.76 points by lunch, the highest level since July 2000.
Investors' focus this week is now turning to Friday's US employment report for March.
"If US payrolls ... deliver the 190 000 increase expected for March, and more importantly, the unemployment rate unexpectedly declines, then the US dollar will remain well supported," National Australia Bank (NAB) currency strategists in Sydney said in a market note.
The euro has gained ground against the dollar recently on expectations of further interest rate rises by the European Central Bank, but with US borrowing costs also forecast to keep rising the currency's gains have been limited.
"While the euro has built a base above 1.2000 dollars, with higher lows and higher highs, its rally looks somewhat under-whelming given the supportive domestic news," the NAB currency strategists said.
"We believe that further gains beyond 1.2200-1.2300 dollars are unlikely in the absence of evidence that US economic growth is wilting," they added. - AFP
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