FOREX-Dollar slumps as U.S. data disappoints; yen gains

Mon Apr 1, 2013 9:44pm IST

* U.S. ISM softer than expected, weighs on dollar
    * Yen gains broadly but downtrend intact
    * Thin trade allows yen to firm despite BoJ easing
expectations

    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 1 (Reuters) - The dollar fell across the
board on Monday, sliding to a nearly four-week low against the
yen, as softer-than-expected U.S. manufacturing data for March
interrupted a run of generally upbeat economic reports. 
    The yen, meanwhile, firmed on safe-haven flows following
unexpectedly weak Chinese factory activity and renewed
uncertainty in the Korean peninsula.
    Volume, however, was thin, with many markets still closed
for Easter holidays, and the low liquidity led to exaggerated
currency moves.
    A weaker-than-forecast U.S. manufacturing report kicked off
selling in the dollar. The Institute for Supply Management said
its index of national factory activity fell to 51.3 from 54.2
the month before. The reading was shy of expectations of 54.2
according to a Reuters poll of economists. 
    "There are some clear signs that recent growth momentum in
the manufacturing sector will not be easily  built," said Alan
Ruskin, head of G10 FX strategy at Deutsche Bank in New York.
"The data will tend to undercut some of the enthusiasm in the
long dollar exposure." 
    The greenback has been in a broad rally this year as
evidence mounted that the U.S. economy is on a stable path to
recovery. The dollar index has gained 3.6 percent so far
in 2013. 
    Ruskin pointed out that it's not all "gloom and doom" for
the U.S. manufacturing report, with both the employment and new
orders components posting new highs.
    In midday trading, the dollar index, which measures the
greenback's value against six major currencies, was down 1.6 
percent to 82.690. It fell as low as 82.647, a one-week trough.
    The mood overall was cautious ahead of the European Central
Bank's monetary policy review on Thursday and the monthly U.S.
payroll data out on Friday.
    The dollar fell nearly 1.0 percent to 93.28 yen,
falling as low as 93.16, the lowest since March 6. The euro also
slid 0.7 percent to 119.98 yen. 
    "We're seeing safe-haven flows from the Australian and New
Zealand dollars into the yen because of the weak Chinese data,"
said Ravi Bharadwaj, market analyst at Western Union Business
Solutions in Washington.
    China's official Purchasing Managers Index reached 50.9 in
March, just shy of market expectations of a jump to 52 from
February's 50.1. 
    
    KOREAN TENSIONS
    Tensions in the Korean Peninsula also supported the yen,
analysts said. South Korea on Monday said it will strike back
quickly if the North stages any attack on its territory amid
shrill rhetoric from Pyongyang and the U.S. deployment of
radar-evading fighter planes.
    Earlier, North Korea said the region is on the brink of a
nuclear war in the wake of United Nations sanctions imposed for
its February nuclear test and a series of joint U.S. and South
Korean military drills that have included a rare U.S. show of
aerial power. 
    Investors had earlier brushed off a disappointingly narrow
improvement in Japanese business sentiment over the last quarter
shown by the Bank of Japan's tankan survey, as the focus is more
on the central bank's policy review later in the week. 
    The BoJ is widely expected to scale up its bond buying and
to extend the maturities of the bonds it purchases under new
Governor Haruhiko Kuroda.
    Bets on a radical shift in the BoJ's policy has ramped the
dollar up 20.9 percent against the yen in the last two quarters,
pushing it to a 3-1/2-year high of 96.71 yen last month.
    The euro, meanwhile, was up 0.3 percent against the dollar
at $1.2861, rallying from a low of $1.2770. Europe's
common currency was still down 2.5 percent so far this year and
has slid steadily since February, when it hit a 14-month high of
$1.3711.
    At the weekend, the Cypriot central bank confirmed that
major depositors in Cyprus's biggest bank would lose around 60
percent of savings over 100,000 euros, well above the initially
touted cut of 30 to 40 percent. 
    The euro has major support around $1.2680, a 61.8 percent
retracement of its July-February rally. But a break there could
open the way for a test of last year's low near $1.20. 
    Borrowing costs in Slovenia, seen by economists as one of
the next potential candidates for the next euro zone bailout,
jumped over 100 basis points in the wake of the Cyprus bailout,
while Italian borrowing costs reached their highest since
November at a five-year bond auction last week. 
    Appetite for Italian debt has been hurt by the deadlock in
the country's politics since inconclusive elections a month ago,
reinforcing the euro zone common currency's weakness.
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