1 August 2003, 08:15  FOREX - Dollar`s gains slow, but bull trend intact

TOKYO, Aug 1 - The dollar pulled back from a three-month high on the yen and a two-week peak versus the euro by midday Friday, but kept its bullish tone as upbeat economic data fuelled optimism about the U.S. economy. The market was also looking ahead to another data-heavy day in the U.S. later Friday -- featuring payroll figures -- with participants keen for fresh factors to continue buying the greenback, dealers said. "Market bulls are becoming increasingly convinced that sentiment for the dollar is strong amid bullish evidence on the U.S. economy," said Koichi Abe, forex section manager at Aozora Bank. At 0334 GMT, the dollar was at 120.37/40 yen after hitting a three-month high of 120.65 earlier in Asia. It was at 120.52/60 in late U.S. trading on Thursday. The dollar's uptrend was slowed in Asia by continued selling from Japanese exporters, but many traders expect the greenback to test 121 yen if the market gets another round of strong economic numbers. On Thursday, preliminary U.S. gross domestic product data showed the economy grew at a brisk clip of 2.4 percent in the second quarter, well above a forecast by economists for 1.5 percent growth. The spurt in growth was driven by the biggest rise in defence spending since the Korean War era. U.S. Midwest manufacturing activity and initial jobless claims for the week ended July 26 were also better than expected. Later in the day, the market will see reports on U.S. nonfarm payrolls. That data from the Labor Department is forecast to show an unemployment rate of 6.3 percent with an addition of 18,000 nonfarm jobs. Also, the Institute for Supply Management will unveil its national manufacturing survey, with the headline index expected to come in at 51.8 for July, up from 49.8 in June. A reading above 50 suggests expansion in the manufacturing sector. Japan also had good news on its manufacturing sector, although the impact on the market was limited. The /Nomura/JMMA Purchasing Managers survey released before the market opened showed manufacturing activity in Japan expanded at its fastest pace in a year in July, rising to 51.1 from 50.4 in June. The euro was on the defensive, quoted at $1.1237/42 compared with the late New York level of $1.1228/34. The single currency dropped to a two-week low of $1.1225 on Thursday. Against the yen, the euro was at 135.26/35 yen compared with 135.26 in late U.S. trade on Thursday. Japan's top financial diplomat Zembei Mizoguchi said on Friday that the yen was not set to strengthen against the dollar, judging from U.S. economic fundamentals. Mizoguchi also said the government would not act to weaken the yen if the market was moving naturally, indicating authorities were not intervening now. He said on Thursday that recent moves in the foreign exchange market were natural. On Thursday, the Ministry of Finance said that Japan sold 2.0272 trillion yen ($16.86 billion) in the currency market in July to prevent the yen from appreciating sharply. So far this year, Japanese intervention has hit a record of around nine trillion yen. "Although yesterday's announcement of intervention volume is old news, in the present dollar-bullish mood, intervention of two trillion yen would have a psychological impact and limit active selling of the dollar," said Michihisa Tanimoto, deputy general manager at Sumitomo Life Insurance. "The market has confirmed the strong commitment by the Japanese government to prevent the dollar's drop," Tanimoto said. Tanimoto added, however, that it was hard to imagine the dollar putting in an extensive rally because of the lingering belief the U.S. would not tolerate a sharp rise by the greenback. ($1=120.23 yen)

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