FOREX-Dollar on defensive vs yen after U.S. GDP disappoints

Sun Apr 28, 2013 9:07pm EDT

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* Dollar/yen still wobbly after Friday's 1.3 pct drop

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* Focus on Fed and ECB policy meetings, U.S. data

By Masayuki Kitano

TOKYO, April 29 (Reuters) - The dollar eased versus the yen on Monday, staying on the defensive after sliding on Friday, when data showed the U.S. economy grew at a slower-than-expected pace in the first quarter.

The dollar last changed hands at 97.86 yen, down 0.1 percent from late U.S. trade on Friday and well below a four-year high of 99.95 yen set on April 11, a week after the Bank of Japan stunned markets with its drastic monetary stimulus programme.

The dollar had dropped roughly 1.3 percent versus the yen on Friday, when the BOJ held off from announcing new monetary initiatives at its latest policy meeting, and U.S. first-quarter growth came in below the market's expectations.

U.S. gross domestic product expanded at a 2.5 percent annual rate in the first quarter. Economists had expected a 3.0 percent growth pace.

The GDP report, which also showed a deceleration in inflation, provides ammunition for the Federal Reserve to maintain its monetary stimulus. The U.S. central bank, which holds a two-day policy meeting that starts on Tuesday, is widely expected to keep purchasing bonds at a pace of $85 billion a month.

"There is a risk, I think, that the Fed sounds a little bit more dovish than we've become accustomed to," said Gareth Berry, a Singapore-based G10 FX strategist for UBS.

Despite such a risk, however, the dollar is likely to find support versus the yen due to the BOJ's aggressive monetary easing, Berry said.

"We're still bullish dollar/yen. The BOJ story still has a long way to run," he added.

Besides the Fed's policy meeting. U.S. economic data will be a focal point this week, especially the closely watched jobs data due on Friday.

The euro edged up 0.1 percent to $1.3039.

Growing expectations that the European Central Bank may cut interest rates at its policy meeting on May 2 to support the euro zone's recession-hit economy have kept a lid on the euro, which has retreated since hitting a seven-week high of $1.3202 on April 16.

While the progress in Italy toward ending a two-month political impasse is positive for the euro, it is unlikely to give the single currency any major boost, said Roy Teo, FX strategist for ABN AMRO Bank in Singapore.

Italian centre-left politician Enrico Letta named a coalition government on Saturday, ending two months of damaging political stalemate.

Letta is expected to set out his government's plans in parliament on Monday and will then need to win a vote of confidence in both houses to be fully empowered.

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