NEW YORK, Aug 19 – The US dollar fell to near a 15-year low against the yen today, after weak US economic reports fuelled concerns about the strength of the US economic recovery and pushed US bond yields lower.

The most recent release indicated factory activity in the Philadelphia Federal Reserve’s Mid-Atlantic region unexpectedly contracted in August for the first in more than a year, heightening worries over the sustainability of the economic recovery.

The yen was lower earlier in the global session, with investors reluctant to chase it higher because of jitters about whether Japanese authorities would take new steps to rein in the yen’s rise.

But the dollar’s gains were reversed as the New York session got underway after the US Labour Department reported initial claims for state jobless benefits rose to 500,000 in the latest week. Markets were expecting claims of 476,000.

“The Philly Fed number is shockingly bad, resulting in the US two-year making new lows in yield,” said Douglas Borthwick, managing director at Faros Trading LLC in Stamford Connecticut.

“The lower yield is playing into the forex markets, as dollar/yen breaches the 85.00 level. With yields at these lows the dollar is quickly becoming the funding currency of choice.”

Midway through the New York morning, the dollar was down 0.6 per cent at 84.94 yen, just off the session low of 84.90 touched after the factory data but still off a 15-year low of 84.72 yen hit on trading platform EBS last week.

“People are still questioning whether to sell the dollar on weak US data or buy it on a general move away from risk,” said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.

The bank’s view is that any weakness in the US economy won’t be isolated, said Thin.

“If the economy is going down, there’s no way the euro zone can withstand the slowdown,” Thin said.

The euro was 0.2 per cent higher against the dollar at US$1.2884 with support at the 100-day moving average around US$1.2776. It again struggled to break through US$1.2900 with a peak of US$1.2902.

The dollar fell to a seven-month low against the Swiss franc.

The euro, supported by an upward revision of German growth forecasts from the Bundesbank, got a further bid by some buyers betting the euro zone may have a better economic outlook despite recent fiscal woes.

Analysts were again cautious however on reading too much into any move given relatively light liquidity during the summer vacation months.

The euro came under pressure in early trade after a report on the website of German magazine Der Spiegel said austerity steps to fix Greece’s debt were harming the Greek economy.

The euro’s recovery came in tandem with a rise in sterling, which jumped more than a cent against the dollar after surprisingly strong retail sales raised hopes the UK’s economic recovery could maintain its momentum.

Sterling was up 0.4 per cent at US$1.5660.

And investors were still watching to see if the Bank of Japan will take more monetary easing steps – such as expanding liquidity – ahead of a meeting between Prime Minister Naoto Kan and BOJ Governor Masaaki Shirakawa expected on Monday. The yen slipped early as rumours circulated that the central bank would hold an emergency policy meeting. Although sources later said this was unlikely, caution kept the yen away from 15-year highs versus the dollar.

“There was a lot of speculation about whether the BoJ would hold an emergency meeting. It didn’t happen but there is still tension and nervousness about what action the BoJ could take,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

Japanese Prime Minister Kan said he would talk to the country’s economics minister and finance minister and the ruling Democratic Party’s policy chief on the state of the economy and possible stimulus steps by the end of August.

Japan’s Sankei newspaper said today the BOJ is considering additional monetary easing steps in line with government efforts to support the economy.

Analysts said potential measures may have limited effect in weakening the yen, while most in the market do not expect Japanese authorities will intervene directly to curb the yen’s rise unless the dollar falls closer to 80 yen. – Reuters