SYDNEY (Thomson Financial) - The US dollar was only slightly lower against the yen and little changed against the euro in morning trading here, but the market continues to favor selling the greenback because of falling US bond yields.
Expectations of increases over the coming months in interest rates everywhere but in the US, including a rise of 25 basis points by the Bank of England Thursday, will remain a burden on the greenback.
At 10.14 am here (0014 GMT) the dollar was at 122.38 yen, down from 122.42 yen in late trading in New York overnight. The euro was at 1.3623 usd, little changed from 1.3624 usd in New York.
Overnight, the dollar had retreated against most major currencies, hitting a 26-year low of 2.0185 usd against the UK pound and weakening beyond 1.3600 usd against the euro.
NAB Capital said concern persisted that the downturn in the housing market in the US , heightened by the meltdown in the US sub-prime mortgage market, would keep economic growth there below trend.
"As such, traders still price a good chance that the Federal Reserve will have to cut interest rates over the next year," it said.
A euro-zone manufacturing purchasing managers index (PMI) last month rose to 55.6 points from 55.4 in May, reaching its highest level since February. The corresponding PMI in the UK slipped to 54.3 points from 54.7 in May.
GFT senior analyst Ian Copsey said: "The UK pound has pushed above the 2.0131 usd high, keeping our medium-term targets for the euro of 1.4000-1.4100 usd and the pound at 2.0505 usd well on line to be met later this month before the August summer doldrums take us into a correction."
The US Institute for Supply Management's manufacturing index for last month hit a 14-month high of 56.0 points, having been at 55.0 points in May.
Later today, the euro-zone producer price inflation data for May are due to be announced and European Central Bank president Jean-Claude Trichet is scheduled to speak, and later still the US pending home sales and factory orders data for May are due to be released.
Sydney 10.14 am (0014 GMT)
US dollar
122.38 yen
1.2106 sfr
Euro
1.3623 usd
166.69 yen
1.6489 sfr
0.6757 stg
Sterling
2.0168 usd
246.78 yen
2.4411 sfr
Australian dollar
0.8586 usd
0.4257 stg
105.04 yen
New Zealand dollar
0.7808 usd
paul.daniel@thomson.com
pd/jm
