The dollar fell to a three-month low against the yen on Thursday as traders zoomed in on growing concerns about the U.S. economic outlook and the yawning trade deficit amid a lack of fresh economic data. The dollar fell through 108 yen for the first time since July 12, and inched down to a two-month low versus sterling. It stayed in sight of eight-month lows against the euro and the Swiss franc. "There aren't any major data until initial GDP, so the market is focusing back on U.S. fundamentals," said Kenji Kobayashi, senior manager of forex at the Bank of Tokyo-Mitsubishi. He was referring to third quarter U.S. gross domestic product figures due on Oct. 29. "The market is slowly factoring in a slowdown in the (U.S.) economy and the pace of U.S. interest rate hikes," Kobayashi added. At 0542 GMT, the dollar bought 107.75/80 yen after falling as low as 107.66. It was 108.25 in late U.S. trade. The dollar's fall accelerated after triggering stop-loss options around 108 yen, dealers said. They are now watching to see if the currency holds above 107.50 yen, a level where more stop-loss options are seen, and the June 24 low of 107.02 yen. The euro was steady at $1.2594 , versus 1.2591 in late New York trade. It hit an eight-month high of $1.2629 on Wednesday.
Sterling was at $1.8171 , after hitting a two-month high of 1.8195. In the past two weeks, the dollar has slid 3.3 percent against the yen and about three percent versus the euro as simmering concerns about the trade deficit resurfaced following recent weak U.S. data. "Last week we had figures showing the U.S. trade deficit rising to its second-highest level on record in August. And this week we saw capital inflows to the United States shrinking," said Kikuko Takeda, market economist at the Bank of Tokyo-Mitsubishi. Data on Monday showed net fund inflows to U.S. markets dropped to $59.0 billion in August, the lowest figure in nearly a year and barely above the level needed to finance the trade deficit. "I think the market is at a watershed right now over whether it (the market) will bring down the dollar's range," said Takeda.
CLOSE U.S. ELECTION
Traders said that some dollar bulls were cutting back positions as the U.S. presidential election on Nov. 2 was too close to call. The latest Pew Research Center poll, conducted between Oct. 15 and Oct. 19, showed on Wednesday that 45 percent of registered voters would vote for U.S. President George W. Bush and 45 percent for Democratic Sen. John Kerry. A similar Pew poll conducted between Oct. 1 and Oct. 3 put Bush ahead of Kerry by 7 percentage points. "I don't think Kerry will introduce a weak-dollar policy but I don't think the dollar will be immediately bought if he wins," said a trader at a foreign bank. With the market focused on U.S. issues, the yen hardly reacted to a smaller than expected trade surplus for Japan in September. The surplus rose 12.7 percent from the same month last year to 1.238 trillion yen, compared with expectations for a rise of 28.3 percent. Looking ahead, the market is awaiting the Philadelphia Federal Reserve's gauge of manufacturing activity for October in the U.S. Mid-Atlantic region. Economist forecasts for the business activity index, due at 1600 GMT, range from a reading of 9.0 to 23.0, compared with 13.4 in September. The median was 17.0. Also on the radar are speeches by various Fed officials including a lecture by Governor Ben Bernanke on oil and the economy.///www.teuters.com