The dollar held slim gains on the euro as Japan’s yen slowed its pace of appreciation Wednesday, with some technical levels and comments from central bank officials leading traders to reversed bets.
The ICE dollar index , which measures the greenback against a basket of six major currencies, rose to 79.807, compared with 79.721 late Tuesday.
The euro fell as low as $1.3255 during the European session before retracing back to $1.3288, down from $1.3313 in North American trade late Tuesday.
The euro also pared its decline against the yen, falling 0.4% to buy ¥117.49.
The euro dropped like a rock in the prior session, weakening after comments by Jean-Claude Juncker, the prime minister of Luxembourg. Juncker, who heads a key regional body, warned that the shared currency is “dangerously high.”
But on Wednesday, Ewald Nowotny, Austria’s central bank governor and a member of the European Central Bank’s governing council, said he didn’t agree. On the sidelines of a conference, Nowotny told journalists that he doesn’t see any long-term prospect of an upward trend in the euro’s exchange rate, according to Dow Jones Newswires.
A Beige Book surprise?
Along with dovish comments from Federal Reserve officials, “a denial from the ECB that the euro is overvalued combined with good earnings is helping the market to revert to its previous trading habit — namely, selling the dollar, and yen, and buying into riskier assets such as the euro,” said Sebastien Galy, a currency strategist at Société Générale.
Boris Schlossberg, strategist at BK Asset Management, pointed to the euro staying above $1.3250 and getting back above 1.2450 Swiss francs , as well as the dollar holding the 88-yen level.
Those “bode well for the ‘euro recovery’ trade, which [is] based on [the U.S. economy] driving global growth in 2013,” he said.
The euro has snapped back sharply against the Swiss franc in recent days, drawing attention as it jumped well above the floor set by Swiss officials.
The shared currency lately slipped 0.2% to 1.2375 francs.
The WSJ Dollar Index , which measures the U.S. currency against a wider basket, was unchanged at 70.63.
The dollar showed little reaction to the Fed’s anecdotal report about U.S. economic conditions, known as the Beige Book.
It said the U.S. economy expanded at either a modest or moderate pace across the country in December and early January, as spending and hiring were held down by concerns over fiscal policy.
Japanese yen
In earlier action, the Japanese yen recovered further after reports that the country’s economics minister will attend the next meeting of the Bank of Japan.
“Once the U.S. fiscal negotiations are resolved, we expect that the U.S. dollar will strengthen against developed market peers on better growth and higher interest rate differentials. But until [then], we expect the U.S. dollar to remain under some pressure,” said strategists at Crédit Agricole.
Against the yen , the dollar fell as low as ¥87.76 but had lately edged back to ¥88.43, still down from ¥88.92 on Tuesday.
The yen climbed on Tuesday after reports that Japanese Economy Minister Akira Amari said that an overly weak yen wasn’t good for Japan’s economy.
Wednesday’s “new round of short covering” coincided with reports that Amari would attend the next policy meeting of the Japanese central bank, observed Sue Trinh, strategist at RBC Capital Markets.
“In and of itself, the attendance of the Economics Minister at a [Bank of Japan] meeting is not unusual, but given Amari’s recent warning about yen weakness, expectations of aggressive Bank of Japan easing were pared back a touch,” Trinh said.
The yen has dropped sharply since last October, when investors began to factor in the likely impact of a change of government on monetary policy, expecting a new government to lean on the central bank to do more to ease deflation.
Also Wednesday, the British pound traded at $1.6006, down from $1.6068.
The Australian dollar traded at $1.0572 compared with $1.0560 on Tuesday, ahead of key employment data due out Thursday.
Marketwatch
