TOKYO, May 2 - The dollar stayed under pressure on Friday, unable to shake off the effects of weak U.S. data that cast a shadow over the economy, dealers said. Although it gained some support against the yen from active commercial buying by Japanese players ahead of a long holiday weekend in Tokyo, the dollar felt the squeeze against the euro and other major currencies, they said. The market was nervous about building dollar-longs too heavily ahead of closely watched U.S. unemployment figures for April, which are expected to send yet more bearish signals. Investors were also looking to shift their funds into higher yielding currencies, such as the euro and the Canadian dollar, resulting in more pressure on the U.S. currency. "We are getting the strong impression that the dollar is under heavy downward pressure," said Hideaki Furumaya, head of the interbank desk at Trust and Custody Services Bank.
"Despite some economic data that showed good signs after the Iraq war, the market is ignoring that and focusing on weak data," he said. "Unless we see U.S. data that show a dramatic recovery, the market won't react much, while investors will continue shifting their funds into currencies with higher interest rates." Along with a series of weak U.S. economic indicators, speculation over a credit easing has increased after remarks by Federal Reserve Chairman Alan Greenspan on Wednesday. The market is not expecting the Fed to lower its interest rates at its next policy-setting meeting on May 6, but Greenspan said that lingering business caution was impeding economic performance, signaling a greater chance for a rate cut down the road. At 0232 GMT, the dollar was quoted at 118.72/77 yen , up from its late Thursday U.S. trading level of 118.43/51 and a one-month low of 118.15 in post-Asian trade.
The greenback rose to a session high of 118.75 yen, but ran out of steam due to a lack of follow-through buying ahead of the U.S. unemployment figures, dealers said. The euro stood at $1.1236/41 against $1.1236/42. It hit a fresh four-year high of $1.1287 on Thursday. The single currency stayed strong near a four-year high of 133.38/50 yen against 133.15/26. Dealers were eager to test the euro's record high of 135.13 yen, hit on the day of its birth on January 4, 1999.
EURO WINNING OUT
The dollar came under pressure on Thursday after the Institute for Supply Management said its manufacturing index contracted for a second straight month, dipping to 45.4 in April from 46.2 in March. Economists had expected a reading of 47.3. Bearish signs in the U.S. labour market also hurt the dollar, with weekly initial jobless claims falling to 448,000 in the week to April 26, though that was higher than expected. "The market is very keen to sell the dollar on data that shows weakness, and it's possible the market will sell the dollar more strongly should today's U.S. payroll figures provide more bearish signs," said Shogo Nagaya, forex section manager at Nomura Trust and Banking. Economists expect the April unemployment rate to rise to 5.9 from 5.8 percent with a loss of 53,000 non-farm jobs. Although the dollar remains under pressure, wariness over possible intervention by Japanese authorities is expected to limit heavy selling of dollars in Tokyo. Japan's top financial diplomat, Zembei Mizoguchi, gave a fresh verbal warning on Friday. Mizoguchi said that recent weakness in the dollar did not change Japan's view of the relative strength of the U.S. economy, and that the ministry was keeping a close eye on the effect of the euro's rise against other major currencies. "Some funds are flowing to the euro and there is some effect on the yen from this," Mizoguchi told reporters at the Finance Ministry.
"As always, we will take appropriate measures against excessive moves." Dealers said the dollar is expected to find support around 118 yen in the short term. "Tokyo players are not in the mood to hammer the dollar sharply below 118 yen because fears over intervention are growing," a Japanese trust bank dealer said. Dealers said heavy dollar sales were unlikely ahead of market holidays in Tokyo and London on Monday.//