The dollar was firmer in early trade against the yen and the euro following mixed economic news from Japan and disagreements at the latest euro group meeting of finance ministers, dealers said. Though the level of bids for the twenty-year Japanese bond auction was encouraging, with the bid/cover ratio at 2.08 against 1.66 in July, investors were disappointed by August's machinery orders.
"The Japanese economy shows little sign of recovery," said Neil Mackinnon, chief economist at ECU Group. "The latest data on machinery orders, a key barometer of investment spending, showed a worse-than-expected drop of 13.6% in August." Mackinnon noted that the Bank of Japan has a chance to loosen monetary policy further this Thursday and Friday, but otherwise remains bearish on the yen. Meanwhile, the dollar is making ground against the euro as the focus bears down on the meeting of EU finance ministers in Luxembourg. The euro group failed to agree on a later date for member states to balance their budgets, with France central to the failure.
In addition, market participants were concerned by the statement Euro group president Nicos Christodoulakis that Germany has yet to present its 2003 budget "but it is clear that substantial adjustment efforts are required". ABN Amro currency strategist Rob Hayward said the whole idea of budget constraints to support the euro appears to be failing. "This is encouraging people to push the euro lower," he said, adding that euro/dollar could drop to 0.9770.
Interest rate watchers will also be looking at the comments of European Central Bank president Wim Duisenberg to the European Parliament this morning. "With the market clearly of the mind that the EC should cut interest rates and Duisenberg likely to take a dim view of recent flouting of the stability pact, there seems ample scope for comment to weigh on the euro this morning," said HBOS currency strategist Steve Pearson.//www.ananova.com