Thursday, August 31, 2006

Forex - Yen pulls back vs dollar in Singapore afternoon trade on weak July data

SINGAPORE (XFN-ASIA) - The yen lost ground against the US dollar in afternoon trade here, undermined by weak Japanese industrial production data for July released this morning which gave rise to renewed speculation the Bank of Japan is likely to keep its benchmark rates on hold, dealers said.

The dollar meanwhile eased moderately against the euro ahead of the European central bank meeting later today, they said.

At 3.12 pm here (0712 GMT), the dollar was at 117.34 yen, up from 117.26 in Tokyo midday, while the euro was at 1.2836 usd, up from 1.2826 in Tokyo earlier.

The yen retreated against the dollar after Japan said its industrial output fell a preliminary 0.9 pct in July from June. This was the first drop in two months and was weaker than the consensus call of a 0.5 pct gain and a 2.2 pct rise shown in the trade ministry's survey for the month.

"The yen appears headed for its worst performing month since March on renewed speculation the Bank of Japan will hold its benchmark interest rate constant after raising it in July for the first time in

six years," said analysts at Leichtenstein's LGT Bank.

The euro also rose against the yen but held to a relatively tight range against the dollar, while euro-dollar gave a lackluster performance which dealers attributed to caution ahead of the European central bank policy board meeting later today.

The ECB is widely expected to keep rates unchanged.

But iInvestors will be closely watching what ECB president Jean-Claude Trichet will say at the press conference to be held after the rate decision is announced, with many betting he will make hawkish overtures and underpin views of an October rate hike.

"Risks are for Trichet to up the ECB's current stance of 'monitor very closely' price developments, to 'strong vigilance,' a phrase which ECB usually uses to signal an imminent hike," said UOB forex strategist Amy Yeo.

"With such a change likely read as hawkish, this would be in line with expectations for a rate hike at the next policy meeting scheduled in October," Yeo added.

Other than the ECB meeting, investors will also be looking at further US data releases including personal income tonight and tomorrow's key non-farm payrolls data.

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