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Dollar finds support, bond concerns wane

TOKYO: The dollar gained ground on both the yen and euro in a subdued Monday session, though they all remained well within recent ranges and traders were hard-pressed to discern any new trends in the market.

The euro was pinned at 98 cents, having twice failed above 99 last week, and could draw only cold comfort from supportive comments by European officials.

Traders also reported a lessening in concern about possible problems at US investment banks and hedge funds caused by last week's surge in Treasury bond prices.

"The losses do seem to have been large-market talk is of several hundred million dollars," said a US bank dealer.

"But it seems to have been quite widely spread so the worst fears about systemic risk haven't been realised, and that's removed one sticking point for the dollar," he said.

The dollar had strolled to 107.79 yen from 107.16 in late US trade on Friday, thanks chiefly to demand from US banks and and Japanese trust banks.

Dealers reported Japanese exporter offers in the 107.80/108.00 area with more layered above 108.50, while solid support had been found at 107.10/20 yen. The euro was dithering at $0.9811 against $0.9825 in the US on Friday. Immediate support was put at $0.9810 with a more important bulwark at Friday's low around $0.9750.

Resistance was seen at $0.9840 and 99 cents with the major barrier at last week's double top of $0.9938/9946.

It did creep up on the softening yen to stand at 105.79 yen from 105.25 in New York. The euro drew marginal support from comments by Bank of France chief Jean-Claude Trichet on Sunday that central bankers were not satisfied with the level of the euro and a strong currency was part of a strong European economy.

The ECB has become steadily more anxious about the euro since its fall below parity and linked its weakness to last week's surprise hike in official interest rates.

Dealers said the next test for the currency would be German jobless and production data this week, particularly after industrial orders data disappointed last Friday.

The outlook was not unfavourable, however, as analysts polled by Reuters favoured a 40,000 fall in January unemployment and a solid 1.3 percent rise in December output.

But still the market was expecting the US economy to outperform Europe this year, a view reinforced in emphatic fashion by the 387,000 jump in January payrolls reported on Friday.

That strength also contrasted favourably with Japan, where Economic Planning Minister Taichi Sakaiya on Sunday cautioned that the economy probably shrank in the October-December quarter.

And, since GDP was also negative in the previous quarter, that was technically a return to recession for Japan.

But traders noted that analysts have been predicting a negative GDP result for some weeks and could see little reason why such old news would cause yen selling at this juncture.

Indeed, dealers were having to scratch about for reasons to justify the yen's softness.

Some linked it to the jump in gold, which could create a demand for dollars for hedging purposes on the TOCOM market since the metal was priced in yen. The February TCOM gold contract was quoted 96 yen higher at 1,092 on Monday afternoon.

Another factor cited was reports that Japanese mobile phone giant Docomo, or NTT Mobile Communications Network Inc, was considering a $35 billion bid for British operator Orange Plc.

Dealers emphasised it was early days yet, but noted that such a deal could well imply NTT having a need to buy sterling at some stage. That in turn helped the pound up to 171.46 yen from 170.63 late on Friday.-Reuters