The dollar hit three-year lows against the yen and weakened against the euro Friday, but recouped some ground after a strikingly strong U.S. manufacturing report.
Still, worries about the U.S. current account deficit continued to undermine the greenback, keeping the dollar lower on the day against many rivals in the first full trading session of 2004.
The dollar swiftly gained ground, pushing the euro well below $1.2600 after the Institute for Supply Management’s December report on manufacturing showed a reading of 66.2, easily beating economists’ consensus forecasts for 61.0.
“The (numbers are) very positive. If this doesn’t make the dollar go up, I don’t know what will,” said Lara Rhame, senior economist with Brown Brothers Harriman in New York.
“Right now, it seems that the production sector and manufacturing sector is set to take over if the consumer starts to fatigue. It should be very positive for the (U.S.) economy and the dollar. If this kind of data doesn’t support the dollar, then it just reinforces my suspicion that the dollar is reacting to structural capital flow issues and not fundamental economics,” Rhame added.
The U.S. currency steered clear of record lows against the euro set on Wednesday, propped up partly by market relief there were no major attacks in the West during the New Year celebrations.
Midmorning Friday in New York, the euro was up 0.3 percent on the day to $1.2574, below record highs near $1.2650 set on Wednesday. Against the yen, the dollar was down 0.4 percent on the day to 107.03 yen, not far above three-year lows around 106.70 yen the dollar hit earlier. Against the Swiss franc the dollar was at 1.2409 francs, down 0.3 percent on the day.
The pound was up 0.2 percent to $1.7863.
Traders doubted whether the ISM report’s beneficial effects on the dollar would last long.
The ISM report’s aftermath will likely be brief and “will not cause any major change to the fundamental view that you kill dollars,” said Thomas Molloy, a trader at Bank Leumi in New York.
The U.S. current account deficit -- a broad measure of the nation’s global trade -- is around 5 percent of gross domestic product. It is one of the biggest weights on the dollar.
Scant trading volumes, with Tokyo markets shut for a holiday, were causing some erratic movements even as fairly small orders went through. But when volumes swell at the start of next week as many traders return to their desks, the momentum of dollar selling could well resume, Molloy added.
Traders said dollar losses against the yen were curtailed by wariness of intervention by Japanese monetary authorities, who sold roughly 20 trillion yen in 2003 to prevent an export-damaging rise in the currency.
The dollar also hit six-year lows against the Australian dollar and New Zealand dollar on Friday, with the Australian and New Zealand currencies boosted by strong commodity prices and relatively high interest rates.
“The commodity currencies are in a fairly good situation and we do see commodity prices moving higher. There is a high yield environment,” said Hans Redeker, chief foreign exchange strategist at BNP Paribas.
Healthy yields also helped the Swedish crown, which hit seven-year highs against the dollar .
Worries that the United States will not attract investment flows to cover its widening current account deficit knocked 17 percent off the dollar’s value against the euro in 2003.
The euro found additional support from news that the Reuters Eurozone Purchasing Managers’ Index edged a little further above the key 50 level that separates shrinkage from growth, rising to 52.4 in December, its highest level since January 2001.