LONDON, Jan 16 - The dollar stumbled along near three-year lows against a basket of major currencies on Thursday as a slump on Wall Street the previous day raised anticipation of more disappointing economic news out of the United States. Key U.S. stock indices shed more than one percent on Wednesday and stock futures were pointing to a weaker start later following the previous session's lacklustre report on the economy in the Federal Reserve's Beige book and Intel Corp's announcement it would slash capital spending this year. Japan's newly appointed top financial diplomat Zembei Mizoguchi and vice finance minister Masakazu Hayashi warned against an export-damaging rise in the yen but this lent the dollar only marginal support.
"The dollar is still vulnerable. The U.S. economy seems to be experiencing another down-leg which has to be met by easier monetary policy," said Brian Martin, chief foreign exchange economist at Barclays Capital. "And easier monetary policy reduces the cost of hedging. With cyclical and geopolitical risk, overseas investors would want to increase their hedging ratio." By 1040 GMT, the greenback stood close to Monday's three-year low of $1.0599 but was finding bids at around $1.06 to defend sizeable options triggers. It was near session lows around 117.87 yen and eyeing four-month lows below 117.52.
DATA AGAINST DOLLAR
German economic growth slowed to 0.2 percent last year from 0.6 percent the previous year, the worst rate in nearly a decade. The 2002 GDP reading was the lowest for the region's largest economy since the 1993 recession, when the economy shrank by 1.1 percent. The dollar hardly blinked on the eurozone's potentially troublesome data, still licking wounds from its a tumble in recent weeks on worries over the possibility of a costly U.S.-led war with Iraq and nuclear tensions with North Korea. "These are clearly factors holding back the U.S. economy, and, at the same time, risk aversion is raising questions about whether foreigners continue to channel large amounts of capital via portfolio or FDI into the U.S.," said Michael Klawitter, senior currency strategist at West LB. At the same time, U.S. data has done little to shore up the greenback. The U.S. Federal Reserve said on Wednesday in its Beige book anecdotal roundup of the economy that the current "soft patch" extended into early January, as consumers kept a tight grip on their wallets over the holiday season. Dealers were looking ahead to the January Philadelphia Federal Reserve survey on mid-Atlantic manufacturing, due at 1700 GMT. The report is expected to show continued expansion in the sector.
LEANING AGAINST WIND
Dealers said the chance of Japanese intervention was among the very few dollar-supportive factors for the time being. "With the market settling down a little bit intervention could be something the Bank of Japan would think (about). If you've got the yen getting stronger all the time as we had for the last few weeks the BOJ is unlikely to intervene then because in some ways it would be catching a falling knife," said a foreign exchange sales manager at a U.S. bank. Yet others thought the threat of actual intervention was not imminent. "Japanese officials are sticking to the similar lines while understanding the yen strength comes from U.S. problems. What can they do? They have limited bullets they can use to stem the yen's rise so I think they will wait for the market to get more extreme," Barclay's Martin said.//