Dollar bounces back on US manufacturing surprise

TOKYO (Reuters): The dollar bounced back on Wednesday from 2-1/2-month lows against the Japanese yen after upbeat US manufacturing data soothed fears the economy was slowing, though gains were minimal ahead of the next set of figures including payrolls.

The Institute of Supply Management report showed the strongest rate of US factory growth in 10 months, a surprise after a string of disappointing data and countering speculation the Federal Reserve will embark on a third round of bond buying to bolster the economy.

“After the surprisingly strong ISM number, the next job data will be more important than usual. If it is strong, it could cement expectation of strong recovery at least in the United States,” said Mitsuru Saito, Chief Economist at Tokai Tokyo Securities.

The payroll data is due on Friday, with economists looking to a job increase of around 170,000 in April, after a disappointing gain of 120,000 in March.

“If the job data sparks risk-on mood, that should lead to the yen’s fall and rise in bond yields. This weekend has a chance of triggering such a trend,” he added. The dollar rebounded above 80 yen and last stood at 80.320. Its recovery from a trough of 79.640 yen hit on Tuesday caught speculators short and forced them to buy back the dollar.



“The market is showing a straightforward reaction to the ISM numbers. But with the payroll data looming ahead, you can’t expect the dollar to keep rising,” said Sumino Kamei, senior currency strategist at the Bank of Tokyo-Mitsubishi UFJ.

The dollar extended gains further after a Moody’s official said the lack of a sales tax increase in Japan could bring forward “the day of reckoning” in the Japanese Government Bond (JGB) market.

Chartists say if the payroll data helps the dollar to end the week above 80.42, the cloud top on weekly Ichimoku charts, it could put the greenback on track for further recovery after this week’s fall below that decisive level.

On the other hand, if it falls below 79.55-60 area, its high after Japan’s October 31 dollar-buying intervention and the 100-day moving average, that in turn could fan bearish mood on the dollar.

The dollar index, a measure of the dollar against a basket of major currencies, also stood off a two-month trough of 78.603 hit on Tuesday. It last stood at 78.883, almost flat on the day.

The euro retreated slightly to $ 1.3211 as traders tried to hunt for stop-loss orders, slipping from a one-month peak of $ 1.3284 hit overnight.