Dollar Trades Near Week Low Versus Yen as Fed Sounds Concern About Economy

By Monami Yui and Ron Harui - Jan 11, 2011 8:58 AM GMT+0800

The dollar traded close to a week low versus the yen after a Federal Reserve official sounded concern about the strength of the U.S. economic recovery.

The greenback held losses that were the sharpest this year yesterday after Atlanta Fed Bank President Dennis Lockhart said he saw further “headwinds” for the U.S. economy in 2011. The Fed will release tomorrow its report on regional economic activity, known as the Beige Book. The yen was close to a four- month high against the euro amid concern Europe’s debt crisis will persist.

“The market is reassessing how long it will take for the economy to fully recover,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides foreign- exchange margin-trading services. “Those concerns may weigh on the dollar.”

The dollar was at 82.81 yen at 9:20 a.m. in Tokyo from 82.71 yen in New York yesterday, when it touched 82.67 yen, the weakest since Jan. 5. The yen declined to 107.25 per euro from 107.12 yesterday when it reached 106.83, the strongest since Sept. 14, 2010. The euro bought $1.2949 from $1.2951.

The Nikkei 225 Stock Average fell 0.5 percent while the MSCI Asia Pacific Index of regional shares lost 0.2 percent. The Standard & Poor’s 500 Index slid 0.1 percent yesterday.

Lockhart yesterday cited uncertainty among businesses and consumers and the damaged housing and credit markets as likely to hold back economic growth, underscoring his view that the Fed’s $600 billion bond-purchase program is a worthwhile insurance policy against risks.

Hiring Misses Forecast

The Fed chairman Ben S. Bernanke said on Jan. 7 it may take four to five more years for the job market to fully normalize, signaling no change in the central bank’s stance to keep borrowing costs near zero. He spoke after the Labor Department reported that employers added 103,000 workers to payrolls last month, fewer than the 150,000 gain forecast by economists in a Bloomberg survey. Data also showed the jobless rate fell to 9.4 percent from 9.8 percent.

The yen’s decline against the euro may be limited on speculation that funding challenges will compel some European governments to seek bailouts.

Portugal will sell 2014 and 2020 bonds this week. Italy will offer 2015 bonds and Spain will auction 2016 debt, according to data compiled by Bloomberg. Belgian debt dropped yesterday as the nation’s king demanded the caretaker government prepare a budget amid a political impasse. Belgium’s 10-year bond yield spread over similar-maturity German debt widened to as much as 1.39 percentage points, near a euro-era peak.

“Looking ahead, we suspect the euro will remain heavy as investors continue to fret about the ability of peripheral states to fund themselves,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “There’s plenty to watch out for on this front this week, with auctions from Portugal, Spain and Italy.”

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net