FOREX-Dollar weakens broadly ahead of ECB, BoJ meetings

Wed Apr 3, 2013 4:38pm EDT

Related Topics

* U.S. private-sector jobs gain lower than expected
    * Dollar sluggish as U.S. nonfarm payrolls data awaited
    * U.S. service sector growth slowest in seven months
    * Euro vulnerable before ECB meeting on Thursday

    By Julie Haviv
    NEW YORK, April 3 (Reuters) - The dollar dropped against the
yen and the euro on Wednesday after reports showed unexpectedly
low job gains in the U.S. private and slower growth in the
service sector last month, raising fears about recovery in the
world's largest economy.
    The weaker-than-expected ADP National Employment Report and
soft service sector number followed a poor U.S. manufacturing
reading on Monday that suggested the economy, which has seen a
run of strong data the last few weeks, has lost some momentum.
    Against the yen, the dollar was down 0.5 percent to 92.94
yen after hitting a session low of 92.69, but it remained
well below a 3-1/2-year high of 96.71 yen set last month.
    Analysts said choppy moves in currencies were unlikely
before the end of the Bank of Japan's April 3-4 policy meeting,
in which it is widely expected to ramp up its bond buying and
extend the maturities of the debt it buys.
    "Everyone will be watching to see how much in additional
purchases the BoJ will announce and if it will be large in scale
like the U.S. Federal Reserve's or marginal and incremental like
they have done in the past," said Ben Emons, senior vice
president/global portfolio manager, at Newport Beach,
California-based PIMCO, which had $2 trillion in assets under
management as of Dec. 31. 
    "People are in a holding pattern right now and waiting to
see if the BoJ surprises to the upside or downside," he said.
    The dollar has climbed roughly 22 percent against the yen
since November, when markets first started pricing in more
aggressive monetary easing from the BoJ.
    Emons, who oversees $70 billion in global assets and also
oversees PIMCO's Forex ETF fund, said he expects dollar/yen to
rise again and reach 100 over the next three to six months.
    "That's because the Bank of Japan is committed to its two 
percent inflation target, which is different than a goal, so the
yen should weaken on that," he said. "The dollar should also
gain from risk aversion stemming from Europe."
    Despite its status as a safe haven, the dollar held losses
amid growing concerns about tensions in the Korean Peninsula.
    The United States said on Wednesday it will soon send a
missile defense system to Guam to defend it from North Korea, as
the U.S. military adjusts to what U.S. Defense Secretary Chuck
Hagel described as a "real and clear danger" from
Pyongyang. North Korea, meanwhile, said it had
"ratified" a merciless attack against the United States,
potentially involving a "diversified nuclear strike".
 
    Kathy Lien, director at BK Asset Management in New York,
said the U.S. services sector and ADP numbers do not bode well
for Friday's U.S. employment report. 
    "This signals the potential for a sizable disappointment
along with further dollar weakness," she said.
    ADP on Wednesday reported an increase of 158,000 jobs in
U.S. private employment, well below the consensus forecast of
200,000. It also revised up February's jobs number to 237,000
from an initial reading of 198,000, though that did little to
lift sentiment. 
    Similarly, the Institute for Supply Management said its
services index last month fell to its weakest since August, and
was short of economists' forecasts. 
    The employment component of the ISM index also dropped,
causing nervousness going into Friday's U.S. nonfarm payrolls
report. Still, not many analysts have revised their forecasts.
    Analysts are forecasting U.S. payrolls to have added 200,000
jobs in March, with the unemployment rate seen holding steady at
7.7 percent.
    The euro last changed hands at $1.2848, up 0.2
percent on the day, a day before a European Central Bank monthly
policy meeting.
    But the euro zone's common currency looked somewhat
vulnerable given a recent run of weak data which, when added to
political turmoil in Italy and concerns about Cyprus, could lead
European Central Bank President Mario Draghi in his post-meeting
comments on Thursday to strike a dovish tone.
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