NEW YORK: The dollar touched an 11-month high against the yen and a one-month high against the euro on Tuesday after US retail sales data reinforced expectations that the Federal Reserve will not announce any new stimulus measures at the close of its meeting later in the day.
The dollar recouped losses against the yen that occurred after the Bank of Japan stopped short of taking aggressive easing steps on Tuesday. Some investors had been betting on a repeat of the central bank's surprise easing last month.
US Commerce Department data on Tuesday showed that US retail sales recorded their biggest gain in five months in February, the latest evidence of improvement in the US economy that has been supporting the greenback.
It followed data on Friday showing that February was the third straight month to record a gain of more than 200,000 jobs.
The growth in retail sales further pushed aside the possibility of a third round of stimulus by the Fed, known as quantitative easing.
The Fed decision is expected at around 2:15 p.m. (1815 GMT).
"The more robust recovery may encourage the central bank to raise its fundamental assessment for the world's largest economy, and we may see Chairman Ben Bernanke refrain from commenting on QE3 as growth and inflation picks up," said David Song, analyst at DailyFX in New York.
The euro was last down 0.3 percent at $1.3113 after falling as low as $1.3050, its lowest level since Feb. 16. Against the yen, the dollar was last up 0.5 percent at 82.63 after touching a near 11-month peak of 82.85 yen, its highest since April 20.
The euro is still pressured by fears the European debt crisis will not be resolved, despite Greece's success in securing a bond swap deal that will cut the country's debt by more than 100 billion euros. Many market players are concerned that other peripheral countries like Portugal may suffer a fate similar to Greece's.
In addition, evidence that the euro zone economy is slipping into recession, in contrast with a brightening picture in the United States, is contributing to a shaky outlook for the euro.
Westpac strategists said they have entered a short euro/dollar trade. They have sold euros at $1.3180 and would look to sell more into a rally to $1.3350.
BANK OF JAPAN WAITS
In trade against the yen, the dollar gained after the Bank of Japan kept monetary policy on hold.
"Speculators were positioning for more aggressive easing from the BOJ and so far those expectations have been disappointed," said Lee Hardman, currency strategist at BTM-UFJ in London.
"We expect the dollar to outperform generally but against the yen it looks to have come too far in the short-term."
Dealers said a widening in the spread between two-year US government bond yields and their Japanese equivalents was helping to support the dollar against the yen.
The dollar peak against the yen came after stop loss buy orders were triggered. Traders reported option structures at 83.00 which were attracting protective dollar sell orders.
A break above 83.00 would expose resistance around 83.10 to 83.15, the 76.4 percent retracement of the dollar's decline from April to a record low in October last year. The yen's losses have gathered pace since the surprise Bank of Japan easing last month and the anticipation that it might have acted again on Tuesday.
In volatile trade, the Australian dollar recovered from losses earlier in the day to trade 0.1 percent higher at $1.0527, off the seven-week low touched on Monday.
Comments
Comments are closed.