FOREX-Dollar dips vs yen, pulls back from 2-week high

Mon Oct 8, 2012 12:35am EDT

Related Topics

* Dollar/yen supported by Friday's rise in U.S. yields

* Near-term upside for dollar/yen seen limited

* Euro sags, inches away from Friday's 2-week high

By Masayuki Kitano

SINGAPORE, Oct 8 (Reuters) - The dollar dipped versus the yen on Monday, backing off of a two-week high hit late last week after a surprise drop in the U.S. unemployment rate soothed investor concerns about the U.S. economy's outlook.

The dollar fell 0.2 percent to 78.55 yen, down from Friday's high of 78.88 yen hit on trading platform EBS, the U.S. currency's strongest level since Sept. 19.

The U.S. unemployment rate dropped to 7.8 percent in September, its lowest level since January 2009, the U.S. Labor Department said on Friday.

The data triggered a rise in the 10-year U.S. Treasury yield to its highest level in about two weeks, and helped the dollar rise versus the yen on Friday, market players said.

Still, a substantial move higher in U.S. bond yields from here seems unlikely, and any gains in the dollar versus the yen will probably be limited in the near term, said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

"The impression I get is just above 79, there is a lot of sellers out there. The impression we get is a lot of (Japanese) exporters will be in around that level," he said.

Friday's data is unlikely to be enough to convince market participants that the U.S. jobs market is headed toward a strengthening recovery, Kotecha added.

According to a business sentiment survey published by the Bank of Japan last week, the average dollar/yen exchange rate assumption that major Japanese manufacturers are using in their business plans for the six months to March 2013 is 78.97 yen.

That suggests that Japanese exporters may want to sell the dollar if it rises beyond that threshold, although they are unlikely to be active on Monday, with Japanese markets closed for a public holiday.

EURO/AUSSIE INTEREST

The euro fell 0.4 percent to $1.2987, pulling away from Friday's two-week high of $1.3072. Against the yen, the euro slid 0.5 percent to 102.03 yen.

Comments by German Finance Minister Wolfgang Schaeuble on Sunday that Chancellor Angela Merkel's trip to Greece this week did not mean the debt-stricken country would receive the next tranche of aid from its bailout, helped drag the euro lower, said a trader for a European bank in Singapore.

Another factor weighing on the euro was Friday's lacklustre performance by U.S. equities, which bodes ill for European shares on Monday, the trader said. "So short-term I think it's a risk-off environment," he added.

A focal point for the euro has been when Spain might make a request for external aid. Traders and analysts say the euro could get a boost if Spain makes such a request as that would open the way for the European Central Bank to buy Spanish debt to help bring down Madrid's borrowing costs.

The euro has climbed around 7.8 percent since hitting a two-year low of $1.2042 in late July, bolstered by hopes for ECB action to help quell the euro zone's sovereign debt crisis.

The single currency has also rallied on the crosses in recent weeks, having hit a four-month high against the Australian dollar of A$1.2824 on Friday. The euro last stood at A$1.2779, down 0.2 percent on the day.

Traders seem increasingly interested in putting on bullish bets on the euro versus the Australian dollar, said Rob Ryan, a strategist for RBS in Singapore.

"In euro/Aussie in particular, we've heard a number of people express an interest in going long," he said.

"In many ways it's a negative expression on Australia. They're afraid to do it against the (U.S.) dollar because of the Fed and what that might ultimately mean for the dollar," Ryan said, referring to the U.S. Federal Reserve's latest round of aggressive monetary stimulus.

The Australian dollar has been dogged recently by worries about a slowdown in China, Australia's biggest export market.

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