Forex - Dollar falls to 2-1/2 month low against yen ahead of Wall Street opening

July 26, 2007 – 9:14 am

LONDON (Thomson Financial) - The dollar hit a two and a half month low against the yen on expectations of a disappointing opening on Wall Street amid ongoing concerns about the health of the US economy.

The Dow Jones index of leading shares is expected to open some 120 points lower. That is more than double the losses anticipated earlier.

‘There’s a lot of nervousness in equity markets and that increase in risk aversion has helped the Japanese yen in particular,’ said Neil Mackinnon, chief economist at ECU Group.

The main reason the yen enjoys support in these risk averse times is that Japanese investors look to repatriate funds. This has helped push the dollar down to a low today of 119.44, its lowest level since May 11.

Steve Barrow, currency strategist at Bear Stearns (nyse: BSC - news - people ), reckons the dollar could fall down as far as 115 yen in the near term.

‘However, over the long haul, we doubt that much will have changed as a result of current tensions in credit/mortgage markets and hence we’d expect yen to slide to 125 yen, if not 130 against the dollar and to fall to 180 against the euro,’ he added.

This afternoon’s US data did very little to alter the market’s predominant position. While the volatile durable goods data disappointed to the downside, the weekly jobless claims figures continued to show the labour market in fairly rude health.

Earlier in the session, the euro rose modestly after money supply data for the single currency zone and a German business sentiment survey reinforced the market’s view that the European Central Bank (other-otc: CHPA.PK - news - people ) will raise borrowing costs again in September in 4.25 pct.

‘We look for a peak refi rate of 4.75 pct in mid-2008 and see upside risks for the euro against the Swiss franc and the pound,’ said UBS (nyse: UBS - news - people ) currency strategist Daniel Katzive.

Meanwhile, the pound remained soft as further evidence emerged of a slowdown in the UK’s housing market.

As a result the market is now seeing only a 42 pct chance of a September quarter point rate hike to 6.00 pct from the Bank of England, and is becoming more wary in pricing in further tightening.

London 1403 BST London 0915 BST

US dollar

yen 119.61 down from 120.37

sfr 1.2090 down from 1.2129

Euro

usd 1.3720 down from 1.3723

yen 164.08 down from 165.17

sfr 1.6593 down from 1.6643

stg 0.6707 up from 0.6690

Sterling

usd 2.0449 down from 2.0509

yen 244.46 down from 246.85