FOREX-Dollar rebounds from one-month lows vs yen ahead of BoJ

Tue Apr 2, 2013 12:21pm EDT

Related Topics

* Investors await easing measures from BoJ
    * US stock gains also supportive of dollar/yen
    * Euro zone manufacturing PMI weak, Cyprus worries linger

    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 2 (Reuters) - The dollar rallied from
one-month lows against the yen on Tuesday, benefiting from a
rally in U.S. stocks and investor caution on the Japanese
currency ahead of a Bank of Japan monetary policy meeting this
week.
    The BoJ is widely expected to ramp up its bond buying and
extend the maturities of the bonds it purchases under new
Governor Haruhiko Kuroda at the bank's April 3-4 policy
gathering. The yen, however, had rallied over the holiday
weekend after recent losses and investors have used its rise to
cash in on gains.
    "It's a bit of a give-back for the yen after its rally over
the weekend, and now the market is anticipating what the BoJ
would and won't do at this week's policy meeting," said Brian
Dangerfield, currency strategist at RBS Securities in Stamford,
Connecticut.
    Gains in U.S. stocks have also boosted the dollar, analysts
said, with the rolling 25-day correlation between the greenback
and the S&P 500 at 44 percent. The two assets'
correlation has risen steadily since March.
    Traders, however,  reported thin liquidity in major
currencies as European markets reopened after the Easter
holiday, and said price moves were expected to be subdued.
    The dollar was last up 0.3 percent against the yen at
93.45 yen after earlier hitting 92.54 yen, its lowest since
March 1.
    The euro also rose 0.2 percent against the yen to 119.96 yen
, recovering after hitting a five-week low of 119.10
yen. Chart support for the euro was seen at its late February
trough of 118.74 yen.
    
    EURO ON THE DEFENSIVE
    The euro, meanwhile, slipped against the dollar, pressured
by euro zone data showing the region was well into economic
contraction territory last month.
    This has prompted expectations European Central Bank
President Mario Draghi would strike a more dovish tone at
Thursday's monetary policy outlook meeting. He could also
provide hints about a possible rate cut.
    "The data does ... confirm that the outlook for the euro
zone has deteriorated over the last month on almost all fronts,
including economic, banking sector and EMU (European Monetary
Union) perspectives," said Camilla Sutton, chief currency
strategist, at Scotiabank in Toronto.
    "We expect euro zone fundamentals to deteriorate further -
this combined with outflow pressures should keep the euro's
downward trend intact," she said. Sutton expects the euro to
close the year at the $1.25 level.
     The euro was last down 0.1 percent against the
dollar at $1.2836, hovering within sight of a four-month low of
$1.2750 hit last week.
    Euro zone purchasing managers' surveys added to concerns
about the single currency's outlook by showing a deepening
decline in manufacturing activity in March, with Italy and Spain
particularly weak. 
    Further weighing on the euro and its outlook was the
resignation of Cyprus' finance minister after concluding a 10
billion euro bailout deal with international lenders in which
the country slashed its dominant banking sector and hit
depositors with losses.
    Michael Sarris, a lead player in talks with International
Monetary Fund and European Union lenders, said he had completed
his task but also that he was likely to come under scrutiny in
an investigation into the crisis. 
    Europe's common currency was expected to stay below chart
resistance at the March 23 high around $1.3050, also due to
concerns about Cyprus' bailout and possible ramifications for
other indebted euro zone countries. Analysts have identified
Slovenia as possibly the next euro zone candidate for a bailout.
    "Through the Cypriot crisis, investors have been dealt a
strong reminder that the euro zone crisis is alive and kicking
despite the generous weight of liquidity that has been so
effectively insulating investors from bad news in recent
months," said Jane Foley, senior currency strategist, at
Rabobank in London. 
    Investors were also cautious before Thursday's ECB meeting.
Although interest rates are expected to be left on hold,
analysts saw a small chance of a cut.
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