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Dollar stages rally ahead of U.S. data
Trichet comments, Japanese data help U.S. currency
MarketWatch.com, March 14, 2005
NEW YORK (MarketWatch) - The dollar rallied Monday, ahead of some key economic reports later in the week, recouping the heavy losses the currency suffered against the euro and yen on Friday when disappointment with U.S. trade data triggered a sell-off.
The euro was quoted at $1.3340, down 0.9 percent, while the dollar stood at 105.12 yen, up 1 percent.
The dollar was lifted against the euro by new remarks by European Central Bank president Jean-Claude Trichet that large and volatile euro moves are unwelcome.
The yen was dented by investor expectations that new economic reports later in the week likely will show a more boisterous pace of growth in the U.S. than was displayed in the latest Japanese gross domestic product report.
Brian Dolan, head of currency research at Gain Capital, said the dollar's gains against the euro accelerated after Trichet indicated the central bank did not want to see a new dramatic euro run-up or lift rates.
ECB rates have been kept unchanged at 2 percent t since June, 2003. Trichet said the low rates have provided significant and continued support, while stimulating strong monetary growth.
Dolan said the dollar today also was aided by a lower gold price.
Overnight in Japan, the country's Cabinet Office said the country's gross domestic product grew a real 0.1 percent in the October-December quarter, revised upward from a 0.1 percent fall in the initial report. The economy grew at an annualized expansion of 0.5 percent, compared with the earlier reported 0.5 percent decline.
Most economists had been expecting a slight downward revision because of other recent data showing that capital spending was weak.
However, the upward change was due largely to revisions in inventories and government consumption. Private consumption was left unrevised, and private capital spending was revised down.
The GDP deflator, a measure of price changes, was revised downward slightly, to show an on-year fall of 0.4 percent, from a 0.3 percent fall in the preliminary report. That shows Japan remained firmly in deflation's grip.
Overall, the revised data had a neutral implication for future Bank of Japan policy, analysts said.
"The revised GDP data are not likely to affect the monetary policy decision at the two-day policy meeting starting tomorrow," wrote Tomoko Fujii, head of economic and market analysis at Nikko Citigroup in Tokyo.
Michael Woolfolk, Bank of New York senior currency strategist, said the Japanese GDP revision was positive in that it "shows Japan is no longer in a technical recession."
"But U.S. economic data later in the week is expected to show that the U.S. economy is still churning out above-trend growth," he said, adding that Japan's GDP improvement was a bit anemic by contrast.
Woolfolk said U.S. retail data for February data and the January business inventories report, both due on Tuesday, are expected to provide evidence of healthy growth in domestic consumer and business activity.
Woolfolk also predicted that the U.S. Treasury Capital Flows report this week would show that the U.S. is able to adequately fund its large current account deficit.
The fourth-quarter U.S. current account report will be released Wednesday and will be one of the most closely watched U.S. data reports of the week, he said.
Swelling U.S. government and current account deficits have pressured the dollar in recent months. However, earlier this month Federal Reserve chief Alan Greenspan indicated the current account deficit could correct itself without causing serious damage to the economy.
The MarketWatch expectation is for a quarterly deficit of $181.7 billion.
Other data released by Japan's Ministry of Finance Monday showed Japan's current account surplus shrank 28.2 percent on the year in January in value terms, the first contraction in two months.
Imports outpaced exports, due to higher prices of crude oil in the period. The margin of service deficits also widened.
The balance of trade in goods and services showed a deficit of 34.5 billion yen, compared with a surplus of 311.0 billion yen in 2004.
Japan's January data are volatile because of the New Year holiday period, the impact of which varies from year to year depending what days of the week the holidays land.
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