FOREX-Dollar falls to six-week low vs yen, euro rises

Tue Aug 6, 2013 4:25pm EDT

Related Topics

* Dollar slips again vs yen; BoJ, Fed seen on hold for now

* Euro rises after German data

* Aussie up after RBA, on track for best day in two weeks

By Wanfeng Zhou

NEW YORK, Aug 6 (Reuters) - The dollar fell broadly on Tuesday, hitting a six-week low against the yen, as investors pared back bets on the U.S. currency on uncertainty about when the Federal Reserve will start reducing its bond purchases.

Expectations that the Bank of Japan, at its monthly monetary policy meeting this week, will refrain from embarking on more stimulus measures also boosted the yen.

The Fed could begin reducing the size of its bond-buying stimulus program as early as September but might wait longer if economic growth fails to pick up in the second half of the year, Atlanta Fed President Dennis Lockhart was quoted as saying.

Below-forecast U.S. jobs data last Friday had prompted investors to push back expectations that the Fed would begin slowing its bond-buying stimulus of $85 billion per month as early as September. The Fed's asset-purchase program is seen as negative for the dollar as it is tantamount to printing money.

"While the weakness of the dollar is pronounced against the yen, it is a broad sell-off that has more to do with Fed policy than BoJ policy," said Charles St-Arnaud, foreign exchange strategist at Nomura Securities in New York.

"This is symptomatic of how trading has been all summer, with so much volatility and people looking to lock in profits whenever they can," he said.

The dollar fell as low as 97.51 yen, its lowest since June 26, according to Reuters data. It last traded down 0.6 percent at 97.72 yen.

The Bank of Japan's two-day meeting will conclude on Thursday and it is widely expected to keep policy steady by maintaining its pledge of increasing base money, or cash and deposits with the central bank, at an annual pace of 60 trillion to 70 trillion yen ($600 billion-$700 billion).

BofA Merrill Lynch said the BoJ might need to consider additional easing if downside risks increased for the economic growth and inflation outlook.

Concerns have risen that Japan's upcoming hike in sales tax aiming at fixing its fiscal problems could derail a nascent economic recovery. Sources have said Prime Minister Shinzo Abe has ordered a study of alternatives to the planned increases to avoid derailing an economic recovery he has tried to foster through a policy mix that has been dubbed "Abenomics".

"We think yen short positions remain at risk in the weeks ahead on growing uncertainty over the passage of consumption tax hike," BNP Paribas wrote to clients.

The euro rose 0.4 percent to $1.3307 on news of a surge in factory output in Britain and Germany, which extended a string of recent upbeat data that boosted hopes for an early end to the euro zone's 18-month recession.

But most analysts believe the region still significantly lags the kind of recovery under way in the United States.

The dollar had briefly pared losses in early trading after data showed the U.S. trade deficit narrowed sharply in June to its lowest in more than 3-1/2 years as imports reversed the prior month's spike, suggesting an upward revision to second-quarter growth.

The dollar index was down 0.3 percent on the day at 81.618, according to Reuters data.

The Australian dollar rose after the Reserve Bank of Australia cut interest rates as expected and gave no clear indication it would ease policy further, disappointing some who had positioned for it.

A squeeze in short positions saw the Australian dollar rise 0.6 percent to $0.8985, pulling away from a three-year low of $0.8848 struck on Monday. It has risen for two days and was on track for its best daily performance in two weeks.

In the very near term though, analysts said the Aussie could squeeze a bit higher, primarily because plenty of investors and speculators had built large bets against the currency and needed to book profits.

But the gains will likely be temporary. The Aussie is likely to be pressured in the medium term by slowing growth in China as well as a strengthening U.S. dollar, Valentin Marinov, G10 currency strategist at Citi told the Global Markets Forum, a Reuters online community.

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