The dollar dipped on Wednesday as it struggled to shake off renewed worries about the U.S. economic recovery in the wake of surprisingly weak consumer sentiment data. The sharp decline in U.S. consumer confidence in January implied a growing disenchantment among U.S. consumers with the economy due to a lack of new jobs, and suggested the Federal Reserve may take its time before raising interest rates. The disappointing data bruised the confidence of bulls, making the greenback numb to potentially dollar-positive remarks from the head of the International Monetary Fund (IMF). IMF Managing Director Horst Koehler endorsed on Wednesday Japan's foreign exchange intervention, saying it was appropriate given a lack of policy tools to reflate the economy.
"The market showed no reaction because people already think that Japan's intervention won international approval at the last Group of Seven meeting," said Toru Umemoto, currency strategist at Morgan Stanley in Tokyo. Koehler, speaking during a visit to Tokyo where he met top government officials, added that he viewed the policy as temporary and not aimed at fixing foreign exchange rates. By 0601 GMT, the dollar was near the day's low of 108.15 yen , but still 2.8 percent off the three-year low hit earlier this month. The euro stayed two percent above its three-week low of $1.2450 hit on Monday, hovering around $1.2680 . That was within two percent of last week's record high of $1.2930. Sterling also retained most of its gains from Monday, trading around $1.8900 , up nearly two percent from lows hit last week.
AWAITING HINT ON US JOBS
The unexpectedly sharp drop in the U.S. Conference Board's consumer confidence measure to 87.3 in February from 96.4 in January bodes ill for the dollar since low yields have been a major reason behind the U.S. currency's two-year downtrend. It also throws cold water on recent dollar bullishness sparked after last week's sudden gains. "Dollar bulls are disappointed about the interest rate outlook," said Masamichi Koike, head of the forex spot trading group at Sumitomo Mitsui Banking Co.
"They were ready to buy back the dollar based on a scenario that last week's dollar recovery would affect the U.S. Treasury market and push interest rates higher, but things didn't move that way," he said. As a large portion of dollars raised by Asian central banks through forex intervention is thought to have been poured into U.S. Treasuries, the dollar's bounce against their currencies is expected to slash demand for U.S. debt. The euro weathered a slump in Germany's Ifo institute's closely watched business climate index, which fell to 96.4 in February from 97.5 in January. The single currency's resilence despite the soft Ifo data led some players to conclude the market may be returning to its old habit of selling the dollar on the huge U.S. current account deficit and geopolitical worries. A top al Qaeda leader, Ayman al-Zawahri, warned U.S. President George W. Bush in an audiotape broadcast on Tuesday to prepare for more attacks on the United States. Some dealers said the tape had a negative impact on the dollar. Looking ahead, traders were awaiting testimony from Federal Reserve Chairman Alan Greenspan due at 1500 GMT, as well as remarks due from a series of other U.S. and European officials.
Fed Board Governor Susan Schmidt Bies is slated to speak at 1400 GMT, St. Louis Fed President William Poole is due to deliver a speech at 1700 GMT and Cleveland Fed President Sandra Pianalto is due to speak at 2400 GMT. In Europe, German Finance Minister Hans Eichel is scheduled to speak at 1700 GMT. German consumer inflation data is due for release at 0700 GMT and Italian business confidence data is slated for 0830 GMT. ($1=108.21 yen)//