TOKYO: The dollar took a break from its recent sprint on Friday as sterling enjoyed a short squeeze and the yen was propped up by profit-taking in the US currency after Japan's parliament approved new leadership at the Bank of Japan, as expected.
The dollar index pulled back slightly to 82.501, further retreating from a seven-month peak of 83.166 hit the previous day, though it is up 4 percent from its Feb. 1 trough of 78.918.
Japan's parliament approved Prime Minister Shinzo Abe's nominee for central bank governor, Haruhiko Kuroda, and nominees for the two deputy governor posts, clearing the way for the radical monetary easing Abe has long pressed for.
But the yen had barely flinched by late Asian trade as hopes for a fresh burst of easing were offset by short-covering in the Japanese currency from one way bets against the yen in the past few months.
The dollar fetched 96.11 yen, almost flat from late US levels. The currency pair has been trapped in a narrow trading range since it scaled a 3-1/2-year peak of 96.71 on Tuesday, as many investors looked to the BoJ's next steps.
"What the BOJ will do should set the dollar/yen's future trading range for a long time. The range could be 86-96 yen (if the BoJ disappoints), in which case, we are now near the top of the range. Or it could be 95-105 yen," said Takako Masai, head of forex at Shinsei Bank in Tokyo.
Kuroda's pledge to "act with speed" and do whatever it takes to hit the BoJ's new inflation target has some investors speculating he may summon a meeting even before the next scheduled policy review on April 3-4. He and the new deputies will take over the current leadership on March 20.
Analysts suspected the greenback could continue to gain ground, particularly against the yen, sterling and euro as the US economy outperforms.
Data showing a fall in the number of Americans filling new claims for employment benefits was the latest in a string of data painting a brighter outlook for the world's biggest economy that has prompted market speculation of when the Federal Reserve will start to slow its asset buying.
However, few market players expect that to be discussed as early as next week's Federal Reserve Open Committee meeting.
"The most likely outcome of the FOMC is no policy change, but investors will be looking out for an improvement in the Fed's economic outlook," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.
"But while the recent data has been great, the fiscal issues remain, so market players might have to pare back their recent optimism."
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