Morning Forex Overview

Previous session overview

The dollar declined against the yen in Asia Thursday on speculation that U.S. Treasury yields will fall further due to concerns over a slowdown in the world's biggest economy.

Strong demand at a U.S. five-year sovereign note auction overnight suggested that recent weak economic reports from the U.S. have made investors pessimistic about the country's growth outlook.

The U.S. currency was weaker also because of speculation that foreign investors will buy new shares offered by Japanese companies, a process which involves yen-buying.

On Wednesday, market sentiment was dampened after data showing demand for U.S. durable goods slid for a second straight month in June. At the same time, the Federal Reserve's latest beige-book report pointed to signs that the economic recovery may be running out of steam, adding to the market's disappointment.

The dollar was at JPY87.19 as of 0450 GMT, lower than JPY87.44 in New York Wednesday.

The euro was higher at USD1.3013 at 0450 GMT from USD1.2988 overnight while it was lower against the yen at JPY113.47 from JPY113.54.

The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 81.970 from 82.132.

The British pound remained at a 5-month peak against the dollar despite dovish comments from the Bank of England, which did little to diminish optimism about the UK economic outlook after a run of encouraging data.

Flat Asian stock markets left the Australian dollar floundering Thursday, rising only slightly through the trading day, with crucial Chinese manufacturing data Sunday the next major test of market confidence. General U.S. dollar weakness and cross-related demand helped to put some support under the Aussie dollar.

Market expectation

Currency dealers believe Treasury yields will keep falling for the time being, meaning investors will see less returns from their dollar-denominated assets. That view helped prompt dollar selling, said analysts.

Investors will pay attention to Thursday's seven-year Treasury bond tender to see whether yields keep falling.

The euro won't be able to rise far above USD1.3, dealers said, because big U.S. hedge funds have resumed selling the euro based on their medium-term European economic forecasts.

The greenback may fall to as low as JPY86.00 in this global day, some dealers said. But the pace of any decline below JPY86.50 would be slow due to dollar-buying orders placed by Japanese importers, said analysts.

European stock markets are expected to have an uneven open Thursday, as investors weigh up the competing influences of disappointing U.S. economic data but upbeat second quarter corporate earnings