RTTNews - Wednesday in Asia, the U.S. dollar and the Japanese yen surged up against their major counterparts as an uncertain outlook for the global economy curbed investors' risk appetite.
Tokyo stocks slumped for a sixth day today, as slowing bank lending and worse-than-expected machinery orders fanned concern that gains have outpaced profit prospects.
The key Nikkei index slipped below the 9,500 line for the first time in over five weeks, amid heightened jitters over prospects for a U.S. economic recovery.
The 225-issue Nikkei Stock Average lost 175.87 points or 1.82 percent from Tuesday to end the morning session at 9,471.92. The benchmark index last traded below the 9,500 line on June 1, when it logged an intra-day low of 9,491.26.
The broader Topix index of all First Section issues on the Tokyo Stock Exchange was down 16.81 points, or 1.85 percent, to 892.32.
Speculation that U.S. President Barack Obama's administration may need to work out a second round of stimulus measures to prop up the U.S. economy fueled pessimism over the pace and sustainability of recovery, sending New York stocks down yesterday.
When risk appetite wanes, investors often cut holdings of stocks and higher-yielding currencies and buy back the yen and dollars that were used to finance the trades.
During Asian deals on Wednesday, the yen rose to 131.07 against the euro. This set the highest point for the yen since May 22. On the upside, 127.0 level is seen as the next target for the Japanese currency. At yesterday's close, the euro-yen pair was quoted at 132.08.
The yen stayed higher as Japan's machine orders unexpectedly fell for a third month and the current-account surplus narrowed because of plunging exports, stoking concern that the economy will struggle to emerge from its worst postwar recession.
Core Machinery orders in Japan declined 3.0% in May, following a 5.4% drop in April. Economists were looking for a gain of 2%. Machinery orders were down 38.3% from a year earlier.
Japan's current-account surplus narrowed for a fourth month in May, adding to signs the global economy will take time to recover. The surplus shrank 34.3 percent from a year earlier to 1.302 trillion yen ($13.7 billion), the Ministry of Finance said in Tokyo.
The yen has gained more than 4% against the euro from a 16-day low of 136.91 hit on July 01.
Against the pound, the yen climbed to a 6-week high of 151.60 in Asian trading on Wednesday. The next upside target level for the yen is seen at 150.9. The pound-yen pair closed yesterday's deals at 153.11.
The U.K. currency lost 1.4% against the yen yesterday as the British Chambers of Commerce said an economic recovery is not guaranteed and the central bank should extend its program to the full 150 billion pounds ($244 billion) and seek permission to spend more.
The pound extended its slide after a report showed factory production unexpectedly fell in May, reinforcing doubts about the U.K. economic recovery.
In Asian deals on Wednesday, the yen strengthened to near a 7-week high of 86.48 against the Swiss franc. This may be compared to yesterday's closing value of 87.15. If the Japanese currency advances further, it may likely target the 84 level.
The yen has been showing strength against the franc after it touched a 16-day low of 90.04 on July 01. Since then, the yen has appreciated 4% against the franc.
The yen that closed yesterday's trading at 94.89 against the U.S dollar jumped to near a 7-week high of 94.26 in Asian deals on Wednesday. The next upside target level for the yen is seen at 93.9.
The dollar fell to near a 7-week low against the yen before Alcoa kicks off the earnings season later today as the first company in the Dow average to report results.
On average, 17 analysts polled by Thomson Reuters expect the company to report a loss of $0.37 per share for the second quarter, with estimates ranging from a loss of $0.24 to a loss of $0.68 per share.
The dollar also weakened against the yen as the market is watching for any comments in the debate on the dollar's role as the world's reserve currency before a three-day meeting of the leaders of the Group of Eight industrial nations and leading developing nations in Italy that starts later today.
Brazilian President Luiz Inacio Lula Da Silva reportedly told the French daily Le Monde yesterday that the U. S. dollar will remain an important currency for decades. He noted that it is not a simple task to replace the dollar.
The yen tumbled to a 12-day low of 97.0 against the dollar on July 01 after the Bank of Japan's quarterly Tankan survey report showed that sentiment among Japan's largest manufacturers rose in the second quarter for the first time since December 2006.
But the dollar pared its gains on the same day as a report released by the Automatic Data Processing, Inc. said that private sector employment fell by more than economists had been expecting in the month of June
Adding to the dollar's weakness, the U.S. Labor Department said on Thursday that non-farm payroll employment fell by 467,000 jobs in June following a revised decrease of 322,000 jobs in May. Economists had expected a decrease of about 365,000 jobs.
With the bigger than expected decrease in employment, the unemployment rate edged up to a new 25-year high of 9.5 percent in June from 9.4 percent in May.
Thus far this month, the dollar-yen pair has lost 3%.
The dollar edged up against its European counterparts today as the U.S. currency is viewed as a safe-haven currency and tends to attract buying when worries about the global economy and financial markets flare up.
In Asian deals on Wednesday, the dollar advanced to a 1-month high of 1.6065 against the pound. If the dollar gains further, it may likely target the 1.580 level. The pound-dollar pair closed yesterday's trading at 1.6135.
The pound declined today despite a report showed that U.K.'s consumer confidence rose more than expected in June. The Nationwide Building Society said that an index measuring consumer confidence in the U.K. climbed 4 points in June to post a score of 58. Analysts had been predicting a score of 55.
The pound slipped from a new multi-month high of 1.6746 against the dollar on June 30 after a report showed that the British economy experienced the largest contraction since 1958 in the first quarter and the GDP decline was severe than initially estimated due to sharp declines witnessed in construction and services.
Dismal economic reports from U.K. this week and weak stock markets added to pound's slide. Thus far, the pound has dropped 4% against the dollar.
Against the euro, the dollar soared to a 2-day high of 1.3883 during Asian deals on Wednesday. If the dollar edges up further, it may test resistance around the 1.383 level. At yesterday's close, the euro-dollar pair was quoted at 1.3919.
Thus far this month, the dollar has strengthened 1.1% against the euro, following a 0.5% gain in June.
The dollar, which closed yesterday's trading at 1.0893 against the Swiss franc, rose to 1.0917 in Asian deals on Wednesday. On the upside, 1.096 is seen as the next target level for the U.S. currency.
A drop in oil prices supported the U.S. dollar. U.S. light crude for August delivery fell 62 cents to $62.31 a barrel at 11:01 pm ET, having settled $1.12 lower at 62.93 a barrel on Tuesday, its fifth straight day of losses. London Brent crude fell 53 cents to $62.70 a barrel.
Switzerland's June unemployment rate, Bank of France business sentiment index for June, U.K. Halifax house prices for June, Euro-zone final first quarter GDP report and the German industrial production for May are expected to influence trading in the European session today.
From the U.S., the Mortgage Bankers' Association's purchase applications index is due to be released at 7am ET. The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 1st at 10:30 am ET. At 3:00 pm ET, the U.S. Federal Reserve is expected to release its monthly consumer credit report.
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