The dollar steadied against major currencies on Tuesday, holding on to most of the previous day's impressive gains as investors grew uneasy about battering the greenback before the Group of Seven meeting next month.
The dollar hit a fresh two-week high of 107.62 yen immediately after the Bank of Japan (BoJ) surprised the market by easing its already super-loose monetary policy.
But the US currency soon settled back to trade at 107.48/53 yen - no surprise to analysts.
"Theoretically, the BoJ's decision will not have any effect on the forex market as no matter how much money the BoJ injects, it is stuck at banks and does not flow out to companies," said Toru Umemoto, currency strategist at Morgan Stanley Japan. "Everybody knows that, so it's a big question why the BoJ raised the target ceiling of current account deposits," he said.
The BoJ announced the easing by raising the target for excess liquidity in the banking system - as measured by banks' current account deposits held at the central bank - to 30-35 trillion yen ($280-326 billion) from 27-32 trillion.
"I think the decision was prompted by the strong yen, and there were two main factors - its impact on the economy, and the difficulty of money market operations caused by massive amounts of yen-selling intervention," said Kiichi Murashima, economic and market analysis director at Nikko Citigroup.
Analysts said the dollar's push higher had been expected after harsh sell-offs in recent months, and it did not suggest a long-term turnaround in the dollar's overall retreat.
The dollar's rise against the euro was helped by growing concerns among European officials about the single currency's sharp gains just a few weeks before the G7 meets on February 6-7. It also got a boost from market relief about steady capital inflows into US assets, dealers said.
The euro was traded around $1.2390 down about four percent from last week's life highs near $1.29.
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