The dollar neared a 15-year low against the yen yesterday, staying under pressure across the board as weak US data and talk of further policy easing by the Federal Reserve weighed on Treasury yields.
Data on Tuesday showed US home purchase contracts tumbled to a record low in June while factory orders fell more steeply than expected, implying an anaemic economic recovery for the remainder of this year.
The numbers added to talk that the Fed might start a new round of Treasuries buying to pump funds into the economy.
As the yen rose near highs last seen in 1995, Japanese Finance Minister Yoshihiko Noda appeared to ramp up the administration’s verbal warnings, saying current moves in the yen were somewhat one-sided.
“Excessive and disorderly currency moves would negatively affect stability in the economy and financial markets, and therefore it’s undesirable.
In this regard I am closely watching market moves further,” he added.
But analysts said it would be difficult for Japanese authorities to step in to weaken the yen at this stage.
Weak US data and speculation of Fed easing pushed down US two-year Treasury yields to a record low of 0,52% on Tuesday, suggesting limited upside for the dollar.
“We see further dollar weakness ahead, with the Fed making it clear its priority is to support growth,” said Ulrich Leuchtmann, currency analyst at Commerzbank.
The dollar fell as far as 85,32 yen, its lowest since late November, and was trading at 85,42 at 1100 GMT (7 am EDT), down 0,4% on the day.
Traders said a decline beyond the 15-year low of 84,82 yen hit in November could open the way for the dollar to slide to the all-time low below 80 yen.
Hefty options barriers are thought to be set around 85 yen, meaning a drop in the dollar could pick up speed below that level.
US focus of concern European shares traded 0,8% lower after the Nikkei average closed down 2%. The benchmark 10-year Japanese government bond yield slid to a seven-year low below 1,0% on worries about the economy and persistent deflation.
“The implications for the currency markets (from falling global bond yields) are far less clear than they have been in the past. However, as the focus of concern is the United States, I suspect it will prove a dollar negative,” said Simon Derrick, head of currency research at Bank of New York Mellon.
The dollar index, a gauge of the greenback’s performance against major currencies, was little changed at 80,614, after closing for the first time since January below its 200-day moving average, coming in at 80,744 yesterday.
It is close to April lows at 80,031, with support at 79,724, the 61,8% retracement of its November to June rally.
The euro fell 0,1% to $1,3217, consolidating after hitting a three-month high of $1,3262 the previous day.
Large expiry interest is at $1,3250 for the 1400 GMT cut yesterday and today, according to IFR’s maturity calendar.
Reuters service IFR noted a large $13400 expiry, in the region of 1 billion euros, set to roll off tomorrow.
Traders will look to the US ADP employment report due out at 1215 GMT for hints ahead of tomrrow’s non-farm payrolls data, which is seen determining the dollar’s near-term direction.