The dollar lost its footing against the yen on Thursday as traders suspected the Japanese monetary authorities had loosened their grip on currency movements despite weak US economic data.
But the US currency managed to hang on to recent gains against other currencies despite Wednesday's announcement of an unexpected rise in the US trade deficit to a record high of $43.1 billion in January.
While traders suspected the BoJ's hand in the dollar's recovery to around 110.60 yen, its fall past the 110.5 level was seen as a natural adjustment to recent dollar/yen movements.
"In the dollar's move up from 105 yen to 112 yen, the market got balled up in intervention, thinking the BoJ was trying to push up the dollar to 115 yen," said Jake Moore, associate director at Barclays Bank.
"The BoJ seems to have eased off a bit, and this has caught the market long." He added that he suspected the BoJ would defend the 110-yen level.
The dollar was hovering around 110.66 yen after falling about 0.4 percent on the day to 110.43.
The US currency was trading at $1.2210 per euro, slightly up from late US levels. The common currency fell 0.8 percent on Wednesday and was about six percent below its record high of $1.2930 hit last month.
In euro/yen trading, meanwhile, the single currency fell more than one yen on the day to 134.56 yen a drop that traders attributed to options-related selling.
"The euro/yen has been a massive, massive mover because we've had divergent moves in the dollar/yen and the euro/dollar and that's been looking heavy on euro/yen," said Moore of Barclays.
The pound was more or less flat at $1.7995 off its two-month low of $1.7962 on Wednesday.
The yen has tended to buck the overall trend in recent days, rising when other major currencies are falling and vice versa.
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