LONDON: The dollar eased against a basket of currencies after six straight days of gains on Wednesday, with falls for stock markets prompting some profit-taking and a drift of money into the traditional security of the yen.
The Japanese currency gained more than half a percent and the euro around a quarter of a cent, halting a steady march by the greenback since it hit respectively 19- and 9-month lows at the start of this month.
A series of threats by Japan to intervene on its currency have had something to do with that turnaround and Koichi Hamada, an economic adviser to Prime Minister Shinzo Abe, was the latest to sound a currency market warning.
But many analysts say the bigger driver has been a general reluctance to drive the dollar much weaker than $1.15 to the euro and $1.45 to the pound at a time when the US economy still seems far stronger than its developed world peers.
US debt yields, however, continue to drop on the back of further dampening of expectations of interest rate rises over the next 18 months, weakening the main argument for any further gains in the dollar.
"The move that we've had over the past 5-6 trading days is really due to the dollar just becoming too soft," said Michael Sneyd, a strategist with BNP Paribas in London.
"We are still looking to sell the dollar against some of the other majors but we're hoping for another bit of a rally in the dollar to sell into."
The dollar index, which tracks the greenback against a basket of six other currencies, shed 0.3 percent to 94.015, moving away from a two-week high of 94.356 set overnight.
It was down 0.6 percent at 108.66 yen after climbing to a two-week high of 109.38 yen in Asian trading. Against the euro it fell 0.3 percent to $1.1400.
GLOBAL FACTORS
BNP's Sneyd argued the retreat in US yields in the past week suggested that investors were coming to the conclusion that it is not just global factors that are likely to keep the Fed on hold this year.
Many economists say the US economy still lacks the investment that will drive greater underlying demand growth and the scale of popular concern over growth evident in the US presidential campaign only argues against raising rates soon.
Against that, net market positioning on the dollar is now negative - meaning conversely the investors who backed its bull run last year again have room to back it.
"Dollar positioning seems broadly neutral as both positioning and price trends suggest longs have been cleared out, and positioning alone will not be the driver of the next broad dollar move," Bank of America Merrill Lynch analysts said.
They said that might generate more pressure on the Canadian dollar and other commodities linked currencies such as the Australian and New Zealand dollar, which have surged since hitting long-term lows in mid-January.
Analysts believe Japan will be wary of intervening to offset flows of money into the yen before it hosts a G7 meeting this month, but Tokyo is clearly unhappy with a 14 percent rise in the currency since December.
Hamada said on Tuesday Japan would step in to foreign exchange markets if the yen strengthened to 90-95 per dollar, even if that upsets the United States.
Those levels are still some way off. "The tone of the verbal interventions has become much more outspoken over the past few days which no doubt has made some traders feel nervous," Commerzbank analysts said in a note.
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