FOREX-Dollar hits 29-month high vs yen; may gain on payrolls

Fri Jan 4, 2013 4:38am EST

Related Topics

* Dollar rises after Fed minutes

* Fed minutes show some policymakers concerned about QE effects

* Dollar/yen hits highest level since July 2010

* Strong U.S. jobs data could lift dollar further

By Anooja Debnath

LONDON, Jan 4 (Reuters) - The dollar hit its highest level against the yen in nearly 2-1/2 years and rose versus the euro on Friday after U.S. Federal Reserve minutes indicated growing unease about the impact of further stimulus.

The dollar could gain further if U.S. jobs data due later in the day beats expectations. The Fed has embarked on a $1 trillion stimulus p r ogramme to lower the U.S. unemployment rate, so a strong jobs number may boost chances the Fed could halt its asset buying sooner than expected.

The dollar broke past reported options barrier at 88 yen to hit a high of 88.26 yen, up 1.1 percent on the day and its highest since mid-July 2010. Traders cited more option barriers at 88.50 and 89 yen.

The dollar also rose to a three-week high against the euro . The euro fell 0.2 percent to a low of $1.3006 with near- term support expected at its 55-day moving average of $1.2986, traders said.

The dollar's broad gains drove its index, a measure of the U.S. currency's value against six major currencies, to a six-week high of 80.783 with U.S. banks cited as the main buyers of the dollar.

Minutes from the Fed's last meeting surprised markets after signalling reluctance among some policymakers to further expand its asset purchases.

"We have seen quite a broad-based dollar rally after the minutes which has ignited a fresh debate about how much liquidity the Fed is going to pump into the economy," said Daragh Maher, FX strategist at HSBC.

"Breaking through 88 in dollar/yen is a significant move. It was a target for a number of people in the market and the question is now whether we have a mindset of taking profit or we look to extend," he added.

The euro rose 0.9 percent to 114.90 yen, but was still far below an 18-month high of 115.995 yen set on trading platform EBS on Wednesday.

YEN WEAKNESS

The yen has been hurt in recent weeks with investors betting the new government of Prime Minister Shinzo Abe will push to weaken Japan's currency and implement aggressive stimulus, and lean on the Bank of Japan to do the same.

A trader for a Japanese bank in Singapore said there was persistent interest from non-Japanese players to buy dollars against yen. "People outside Japan are all looking to buy (the dollar) on dips," he said.

In light of the Fed minutes, markets will pay particular attention to the U.S. non-farm payrolls report, due at 1330 GMT, which is expected to show the American economy added 150,000 jobs in December, according to a Reuters survey of economists, up from November's 146,000. The unemployment rate is expected to stay at 7.7 percent.

Rob Ryan, strategist for RBS in Singapore, said the minutes raised the chances that on the back of more good data, a few other Fed policymakers "might shift in that direction and possibly bring QE (quantitative easing) to an end well before people thought was likely."

"If we do get some decent jobs data tonight, then the impact of that jobs data is going to be magnified," Ryan added.

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