TOKYO: The dollar hovered at three-month lows against the yen on Wednesday and looked poised to lose ground for a fifth straight day, pressured by the Federal Reserve's pledge last week that it would keep interest rates near zero at least until late 2014.
The US Federal Reserve's decision has triggered broad selling in the greenback and battered yields on US Treasury notes, with the yield on the five-year note barely above levels not seen since at least the 1960s.
The dollar revisited 76.14 yen, a three-month low it hit the previous day, pushed lower by selling from Japanese exporters and model funds although bargain-hunting by Tokyo margin players lent support, traders said.
"The Fed's decision is being slowly priced in the market, and it seems the dollar may stay pressured around the current levels at least until Friday's US jobs data," said Koji Fukaya, chief currency analyst at Credit Suisse in Tokyo.
More and more analysts believe the Fed is paving the way for another round of quantitative easing which will encourage the use of the dollar as a funding currency for carry trades.
The dollar's recent weakness has kept traders on their toes as the greenback is now within shouting distance of its record low of 75.311 yen plumbed on Oct. 31 when Tokyo stepped into the market with massive yen-selling intervention.
"We may see the dollar go another leg lower on hopes for QE3 if the US jobs data comes in well below forecasts, but longer term I think Japan's tough fiscal situation will dampen investor demand for the yen," said Fukaya.
Many Tokyo traders agree with Fukaya, adding that bids spotted at and below the 76 yen level would likely offset any further yen-buying triggered by stop losses also at and below 76 yen.
EXTENDING LOSSES
The euro dipped 0.1 percent to $1.3069 on selling from model funds, extending losses after a messy sell-off overnight, in which month-end selling stemming from portfolio-rebalancing eradicated days of hard-won gains.
The sell-off has led analysts to suggest that the euro's recent strength may have run its course after it gained nearly 1 percent in January, its best monthly performance since October.
That view has been underscored by its failure to break major resistance for a second time at $1.3244, the 38.2 percent retracement of its October-January decline.
"This abrupt end-of-month reversal could mark a return to dominance for risk aversion currency drivers," said currency analysts at Credit Agricole.
"Unsustainable public deficits within a currency union require complete fiscal policy coordination. Such coordination remains lacking," they said reiterating their bearish view on the euro.
Immediate support for the currency lies below Wednesday's lows at the Tenkan line at $1.3049 and the previous day's trough of $1.3042.
While Greece looked closer to clinching a deal on its debt, the European Central Bank showed some reluctance to agree on similar terms for its own Greek bond holdings.
The dollar index was unchanged at 79.33 while markets were closely watching for any moves from the Swiss National Bank as the euro traded near to the 1.20 franc floor in euro/Swiss.
The euro was last at 1.2041 francs, just above 1.2025 struck overnight, its lowest since the SNB set the floor in September.
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