NEW YORK: The Japanese yen recovered from a nine-month low against the dollar on Monday as investors decided the greenback's 5.5 percent advance against the Japanese currency this month was too far, too fast.
Although most analysts expected dollar/yen to rise further in the long term, some believe the dollar may have limited scope to gain much above 82 yen short term, given the possibility of more monetary easing by the US Federal Reserve.
The dollar's rise against the yen has tracked a widening spread between short-term US and Japanese yields after unexpected monetary easing in Japan earlier this month, coupled with data showing signs of an improving US economy.
The euro eased against the dollar but stayed near recent highs before an expected liquidity injection by the European Central Bank (ECB).
"Some retracement is expected, given that dollar/yen has rallied nearly 6.0 percent in the month of February, driven by a combination of factors that include central bank policy and weakened economic data," said Eric Theoret, currency strategist at Scotiabank in Toronto.
The dollar rose as high as 81.61 yen in early global trade, according to Reuters data, before surrendering gains. It was last down 0.7 percent at 80.42, but still left the dollar with a 5.5 percent gain for the month against the yen. It is the biggest monthly advance since December 2009 at current prices.
An options barrier is reported at 82.00 yen, though analysts said short-term resistance is now at 81.00 yen, given that it has broken through the level for two straight days but has failed to hold it at the close.
Still, Commonwealth Bank of Australia raised its dollar/yen forecasts to 90 yen by the end of September and 92 yen by year-end on expectations that Japan's terms of trade will deteriorate in the coming months.
But many are skeptical the recent move marks the start of a long-term uptrend in dollar/yen.
"For dollar/yen to trade higher you need to see interest rates in the US and other countries outside of Japan move higher. This would be the trigger for long-term weakness, but it is not the case yet," said Richard Falkenhall, currency strategist at SEB in Stockholm.
Later this week, US Fed Chairman Ben Bernanke may hint at the possibility of another round of bond-buying when he testifies before Congress.
With a surge in oil prices, investors were concerned about further asset purchases by the Fed and what higher crude costs would mean for the economic recovery and risk appetite.
"According to a previous report conducted by the Federal Reserve, a $10 rise in oil prices can cut economic growth by 0.2 to 0.3 percentage points," said Kathy Lien, director of FX research at GFT in Jersey City. "If the rise in oil prices is sustained, oil could become as big of a threat to global growth as the European sovereign debt crisis."
The euro climbed to 109.89 yen, according to Reuters data, the highest since Oct. 31, before sliding off highs to trade at 107.87, down 1 percent.
ECB CHEAP FUNDING
The euro was down 0.3 percent at $1.3412.
The euro has not strayed far from the 2-1/2 month high of $1.3486 set on Friday, with more gains possible before the ECB's second offering of unlimited 3-year loans to banks in a longer-term refinancing operation (LTRO) on Wednesday.
"At least for now, a large ECB LTRO could be positive for the euro as the market will focus on the positives and it will increase risk appetite," SEB's Falkenhall said.
A Reuters poll of economists showed banks will borrow 492 billion euros, close to the 489 billion borrowed in the first deal, just before Christmas.
But the euro may struggle longer term as concerns grow that the ECB's cheap funds are a form of quantitative easing. Hurdles also remained after finance ministers agreed to a second bailout for Greece earlier this month.
Germany's parliament approved a second bailout despite the country's growing unease over debt-ridden Greece's ability to push ahead with painful austerity measures and remain in the euro zone..
Euro zone finance ministers will meet to discuss Greece and its private sector debt restructuring in Brussels on Thursday, the president of the Eurogroup, Jean-Claude Juncker, said.
Comments
Comments are closed.