The dollar closed lower Monday in an abbreviated trading session, weakened by fears that upcoming Japanese trade data will show that U.S. exports are not as strong as some were beginning to believe.
"There was some fairly decent, but spotty, interest in selling dollars here and overseas," said a currency dealer.
The dollar closed at 1.68 West German marks, down from 1.6875 and at 129.60 Japanese yen, against Friday's close of 130.95.
The dollar began to weaken late in Asian trading after opening higher on the strength of last Friday's Commerce Department report showing a sharp reduction in the U.S. trade deficit in November.
Report Due Today
Analysts attributed the drop to fears that a report due out today in Tokyo will show a big increase in Japan's December trade surplus, effectively canceling out the U.S. improvement.
Dealers also attributed a portion of the day's decline to profit taking after Friday's big jump.
"After a big gap up (in exchange rates), there is usually a retracement," said one dealer.
In Tokyo, the dollar rose briefly above 131 Japanese yen for the first time in more than a month but eased to close at 130.50 yen, up from 126.95 yen on Thursday. Tokyo markets had been closed Friday for a national holiday.
Gold prices strengthened in New York in response to the dollar's slip. Republic National Bank of New York reported a gold bid of $476.40 an ounce at 4 p.m. EST, up from a late Friday quote of $473.75.
In later London trading, the dollar was quoted at 130.20 yen. In New York, where trading was limited due to the observance of Martin Luther King, Jr.'s birthday, the dollar slipped to 129.60, compared to 130.95 late Friday.
Report Could Show Increase
Gary Dorsch, analyst for LNS Financial Group in Chicago, said traders were concerned that the Japanese report could show an increase in the surplus to between $7 billion and $8.5 billion, from $4.74 billion in November.
Traders feared an increase in the surplus could counter the positive effect of a drop in the U.S. trading shortfall to $13.2 billion in November. Big surpluses in Japan can bolster the demand for yen and depress the dollar as exporters repatriate their profits.
But Dorsch cautioned that the Japanese report, even if it shows an overall increase in the surplus, could indicate some improvement in Japanese-U.S. trade. He said reports circulated in the markets that the Japanese surplus with the United States may have eased in December to about $3.5 billion, from about $4 billion the previous month.
"If the report shows a narrowing (in the Japanese-U.S. surplus), I think the dollar could rebound," said Dorsch.
The dollar gained against the British pound in London, where it cost $1.7705 to buy one pound late Monday, compared to $1.7768 late Friday. But the pound strengthened later in New York to trade at $1.77675, from $1.7730.