Dollar Rebounds from a Four-Week Low

Fri Aug 20, 2004
By John Parry

NEW YORK (Reuters) - The dollar rebounded from a four-week low against the yen on Friday as technically focused traders shifted positions and, for the moment, ignored political and economic news like spiking oil prices.

After the U.S. currency hit lows against the yen on stronger-than-expected Japanese service sector data that raised optimism about the world's second biggest economy, the dollar bounced back as the New York session geared up. But the bounce was well within recent ranges.

In a session bereft of major U.S. economic data, currency traders were closely watching other asset markets including oil for directional impetus.

Major currencies, meanwhile appeared to be largely unaffected by oil prices hitting a new peak above $49 a barrel on Friday. Petroleum is being driven higher by escalating violence in Iraq and demand from China and India, which so far seems unaffected by surging prices.

U.S. Treasury Secretary John Snow said on Friday there had not yet been a large enough disruption to the supply of oil to warrant a decision to tap the U.S. Strategic Petroleum Reserve

Investors pondered how soaring oil prices would influence the world's major economies. The yen is particularly vulnerable to this scenario because of Japan's heavy dependency on imported oil, but the Japanese currency's performance was mixed.

The euro was down 0.4 percent against the yen early in New York at 134.73 yen (EURJPY=: Quote, Profile, Research) .

The dollar gained 0.2 percent against the yen, but climbed more steeply against the euro, the pound and the Swiss franc.

"The strength in the dollar, I think is all technical, all positioning," said Tim Mazanec, senior currency strategist with Investors Bank & Trust in Boston. "We are just oscillating within the ranges," he said.

The euro has been flitting between about $1.2100 and $1.2400 for two months, and retrenched from its attempt to push to the upper cusp of that range, said Mazanec.

The single European currency failed to break decisively above an options barrier around $1.2380, some said, hitting session highs earlier at $1.2382 according to Reuters data.

As the euro sagged down through some key levels, its descent steepened, helping give the dollar recovery more impetus.
The U.S. currency's rally was built on "not much more than some stop-loss orders in euro/dollar that kicked in at $1.2330 and then again at $1.2300," said David Leaver, senior trader with Gain Capital in Warren, New Jersey. "It has to do with choppy intraday conditions...with no real fundamental signals," he added.

Early morning in New York, the euro (EUR=: Quote, Profile, Research) fell 0.6 percent to around $1.2291 according to Reuters data.

Against the yen (JPY=: Quote, Profile, Research) the dollar traded at 109.64 yen, from around up about 0.2 percent.

Against the Swiss franc (CHF=: Quote, Profile, Research) , the dollar climbed about 0.8 percent to 1.2518 francs.

Sterling(GBP=: Quote, Profile, Research) slipped 0.4 percent to $1.8236.

DOLLAR MULLS OIL, RATES

For the dollar, the market's focus remains on the outlook for U.S. interest rates, especially with concerns that rising oil prices might put a brake on the U.S. economic recovery, as well as concerns about the wide U.S. current account deficit.

Dealers remained ambivalent on how to interpret Thursday's survey from the Philadelphia Federal Reserve, which showed output at U.S. Mid-Atlantic factories slowed in August as new orders dropped sharply. But the report was not as weak as some whisper numbers had suggested and left analysts looking for more clues on the Federal Reserve rate hike outlook.

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