Dollar Slips Versus Yen On Economic Jitters

CURRENCIES: Dollar Slips Versus Yen On Economic Jitters

By William L. Watts

The U.S. dollar lost ground versus the Japanese yen on Thursday as investors continued to scale back holdings of assets perceived as carrying relatively high risk.

A warning by Chinese officials indicating they would attempt to curb capital spending demand triggered some safe-haven flows into the Japanese yen starting in Asian trading hours.

U.S. equities found a floor as data showed the U.S. economy was not weaker than previously reported in the second quarter, while jobless claims continued to decline.

The U.S. dollar traded at 93.87 Japanese yen, down from 94.22 yen in New York late Wednesday.

The dollar index (DXY), which tracks the greenback against a trade-weighted basket of six major currencies, fell to 78.590 from 78.660 late Wednesday.

The euro also advanced against the greenback, rising to $1.4251, from $1.4241 Wednesday.

The dollar pared some losses after the Labor Department said initial claims for jobless benefits fell by 10,000 to 570,000 in the latest week. While some economists had anticipated a bigger drop, it's still much better than the rate of claims months ago.

"While the reading on initial claims was more than expected, the general idea that the labor market is improving should remain unchanged even if there has been some 'stalling' of the improvement," said Dan Greenhaus, chief economic strategist at Miller Tabak.

A separate report said the economy shrunk 1% in the second quarter, unchanged from what the government previously estimated while economists expected the decline to be worse.

Strategists at KBC Bank in Brussels noted the euro/U.S. dollar currency pair has been locked in a narrow trading range since early June. With the European Central Bank and the U.S. Federal Reserve both likely to maintain easy monetary policy conditions for some time to come, interest-rate expectations -- often a key driver of currency market moves -- are unlikely to play a major role any time soon, they argued.

That would tend to put the emphasis on risk appetite, with the euro likely to rise as equities gain ground and investors shun safe-haven assets such as the dollar and yen.

But the stock market's recent gains have seen the link between the euro/U.S. dollar pair and global stocks weaken compared to the spring, leaving a "neutral and indecisive" trading picture.

Meanwhile, the British pound lost ground, despite a further rise in U.K. house prices in August. Mortgage lender Nationwide said the average price rose 1.6% from July, marking a further improvement in the hard-hit property sector.

The pound (CUR_GBPUSD) changed hands at $1.6195, down from $1.6230 on Wednesday.

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(END) Dow Jones Newswires

August 27, 2009 09:35 ET (13:35 GMT)


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