* Dollar hits two-month lows vs yen, below 100-day MA
* Euro recovers from two-month low vs dollar
* Expectations grow for euro zone quantitative easing
* Global stock market rout spurs safe-haven bids
By Richard Leong
NEW YORK, Feb 3 The dollar fell to a two-month
low against the safe-haven yen on Monday on persistent jitters
over troubles in emerging markets and as surprisingly weak
domestic manufacturing data spurred worries about U.S. economic
A worldwide stock market rout and losses in emerging market
currencies intensified demand for perceived low-risk currencies
and investments including U.S. Treasuries and German Bunds.
The latest signal of slowing U.S. growth raised bets the
U.S. Federal Reserve might refrain from a further reduction of
its stimulative bond purchases, analysts said.
The U.S. central bank last week voted to reduce its monthly
purchases of Treasuries and mortgage-backed securities by $10
billion to $65 billion, following a $10 billion reduction in
The Institute for Supply Management said on Monday its index
of U.S. factory activity fell to 51.3 last month, the lowest
level since last May, from a recently revised 56.5 in December.
The most alarming aspect of the report was the new orders
component, which recorded the largest monthly drop in 33 years.
"Markets were keyed for a strong manufacturing report, and
they got slammed, and the dollar along with them, as January's
ISM survey at 51.3 showed this leading sector far weaker than
expected," said Joseph Trevisani, chief market strategist at
WorldWideMarkets Online Trading in Woodcliff Lake, New Jersey.
Wall Street stocks also sold off on the manufacturing data
with the Standard and Poor's 500 index losing 1.9
percent. The dollar shed 1.1 percent against the yen to 100.90
yen. It fell below 101 yen for the first time since Nov. 22, and
pierced its 100-day moving average, portending further decline
in the near term.
Against a basket of major currencies, including the yen, the
dollar dropped 0.3 percent to 81.042, wiping out Friday's
Data released late Friday showed speculators reduced their
bullish dollar bets to the lowest levels in more than two
The euro, in reaction to the disappointing U.S. factory
data, recovered from a two-month low against the greenback. The
currency earlier fell against the dollar as expectations grew
that the European Central Bank might make an aggressive move to
combat deflation when it meets on Thursday.
With the ECB's main interest rate already at a record low
0.25 percent, some analysts expect the central bank to start
buying sovereign bonds to loosen monetary conditions - a move
that would be similar to the Fed's quantitative easing program -
to avert a downward price spiral that could cripple the economy
"What really matters is deflation," said Hans Redeker, head
of global currency strategy at Morgan Stanley in London. "The
euro is going to find it very difficult to hold its value."
On Friday, data showed a surprise drop in euro zone
inflation for January to 0.7 percent year-on-year. Analysts had
expected prices to rise 0.9 percent.
Earlier, the euro fell against the dollar on speculation
about ECB action, hitting its weakest level against the
greenback since late November before rebounding. It last traded
up 0.3 percent at $1.3524 from an earlier low of $1.3475.
Against the yen, the euro zone currency fell to a fresh
two-month-plus low at 136.32 yen, and it dropped to
its lowest level against the Swiss franc in more than six weeks,
at 1.2187 francs.
A sharp selloff in emerging currencies in recent days has
supported the yen broadly, fueling its revival after a dismal
2013 that stemmed partly from the Bank of Japan's bold measures
to stimulate the country's economy.
Analysts pegged short-term support in the 101 yen area for
the dollar heading into Friday's release of the U.S. payrolls
report for January. If that level fails to hold, the dollar will
likely test 100 yen.
"There's interest to buy dollars here (101 yen), but it
could well be a temporary support level," said Ronald Simpson,
managing director of global currency analysis at Action
Economics in Tampa, Florida.
With trading volumes still subdued after Friday's Lunar New
Year holiday in Asia, investors were awaiting the payrolls data
to judge whether the Fed will taper further. Job gains in
December were unexpectedly weak, which analysts downplayed due
to inclement winter weather.
If the Fed keeps cutting back its bond-buying program, it
will likely encourage investors to pull money from emerging
markets and to put it into U.S. bonds.
Among some of the recent battered emerging-market
currencies, the Russian ruble held near a five-year low
against the dollar, last trading at 35.44 ruble per dollar.
The South African rand weakened to 11.25 rand against
the greenback, bringing its year-to-date decline versus the
dollar to 7.7 percent.