The yen hit a fresh 10-month low versus the euro on Thursday and touched a three-week trough against the dollar as expectations mounted that Japan would lag the eurozone and US central banks in raising interest rates. The dollar's advance slowed into the Asian afternoon with the March 11 high of 83.30 yen proving tough resistance, while selling by Japanese banks and foreign players along with some fiscal year-end yen demand from Japanese exporters pushing the pair close to the 100-day moving average around 82.60.
The yen was unable to recover strongly, however, as hawkish comments by euro zone and US central bank officials reinforced the view that the global economic recovery is on track, bolstering risk-friendly sentiment at the end of a volatile quarter. The dollar rose to 83.21 yen before stepping back to 82.71. At Thursday's high, the dollar was up 9 percent from its record low of 76.25 yen set on March 17 before G7 central banks intervened in a rare coordinated move to stem the yen's rise.
However, dollar buying fizzled in the face of key resistance at 83.30 and offers from Japanese exporters at 83.50. A break of the 100-day moving average around 82.60 may trigger more selling. The euro rose as high as 117.54 yen, its highest since May 2010, bringing its gains this year to 8 percent.
The euro rose 0.2 percent to $1.4156, facing resistance at $1.4220 and $1.4248. BNP Paribas is recommending buying euros from $1.4120 to target $1.45 with a stop at $1.4020. The Australian dollar was the main beneficiary of flows into higher-yielders, hitting a fresh 29-year high of $1.0348 after favourable retail sales and credit growth data.
The dollar index fell a quarter percent to 75.903. Wednesday's comments from top Federal Reserve officials added to expectations that the central bank is nearing the end of its current round of stimulus. Still, the European Central Bank is set to be the front runner in the tightening cycle, which is helping the euro across the board.
ECB Executive Board member Lorenzo Bini Smaghi said on Thursday the central bank's policy is to gradually raise interest rates, while another board member, Juergen Stark, said rates are exceptionally low, cementing expectations for an April interest rate hike. Credit Agricole said the euro may struggle to advance further against the dollar, however, given that the euro zone rate outlook is largely priced in. The bank said the correlation between euro/dollar and the three-month eurozone-US interest rate spread stands at 0.95, showing an extremely close relationship.