Dollar under pressure, Nikkei to set yen course

SYDNEY Thu Jun 13, 2013 7:39pm EDT

1 of 3. A man holds Japanese 10,000 Yen ($121) bank notes in front of a bank in Tokyo November 22, 2012.

Credit: Reuters/Kim Kyung-Hoon

SYDNEY (Reuters) - The U.S. dollar remained in the doldrums in early Asian trade on Friday, having slumped to a fresh four-month low against a basket of currencies as a bounce-back in global equities saw investors favor the euro and commodity currencies.

The yen also beat a hasty retreat from a two-month peak versus the greenback and multi-month highs on commodity currencies as Wall Street rallied on upbeat U.S. data, shaking off a negative lead from Asian bourses.

The dollar index .DXY was at 80.751, not far off a low of 80.500 plumbed on Thursday. It was on track to post a loss of around 3 percent on a two-week period, its biggest such decline in over a year.

The euro traded at $1.3362, having hit a fresh four-month high of $1.3390, while the Aussie dollar jumped nearly 2 percent to $0.9651, pulling well away from a 33-month low of $0.8325 plumbed on Tuesday.

Against the yen, the dollar rose 0.2 percent to 95.58 up from this week's trough of 93.75, and the euro bounced back above 127.00, recovering from a fall to 124.94 on Thursday.

Markets are now waiting to see if Japanese stocks will steady following Thursday's 4.8 percent drop in the TOPIX .TOPX and 6.4 percent tumble in the Nikkei .N225.

Extreme volatility in Japanese equities has unsettled the currency market, forcing many investors to unwind short yen positions and undoing much of the efforts of the Bank of Japan to stimulate the economy.

The current bout of market turbulence started when investors began worrying that the Federal Reserve will start scaling back its massive stimulus program this year.

Markets are now waiting to see if Fed Chairman Ben Bernanke will try and soothe markets after the June 18-19 policy meeting.

"One way to view the markets since May is that participants have started to 'grieve' the loss of extreme Fed policy accommodation," said Alan Ruskin, strategist at Deutsche Bank.

"For the coming week, markets should position for Bernanke trying to assuage market fears."

Ruskin said Bernanke has a strong interest in making it clear that the timing of any withdrawal is data dependent and that the Fed chief needs to clarify some of the parameters behind a 'tapering' decision.

RBC's head of U.S. rates strategy, Michael Cloherty, said the Fed is transitioning and not tightening.

"We think the Fed's communication strategy will shift to sending the message that tapering does not mean a rapid transition to higher fed funds rates," he wrote in a report.

There is little in the way of market-moving economic news out of Asia on Friday. The Bank of Japan will release minutes of its late May meeting, when the policy board voted unanimously to stick with April's massive quantitative easing.

The Japanese cabinet is also expected to approve on Friday the government's growth strategy plan, which includes tax cuts on corporate investments to boost their capital spending.

(Editing by Wayne Cole)

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