FOREX-Dollar rises in subdued trade as investors shun risk

Fri Jan 3, 2014 3:40pm EST

Related Topics

* Yen rises versus euro as investors take profits
    * New York trade quiet amid major snowstorm
    * Fed Bernanke gives upbeat assessment of U.S. economy in
coming quarters
    * Euro extends slide after second-half rally

    By Julie Haviv
    NEW YORK, Jan 3 (Reuters) - The dollar rose broadly on
Friday, buoyed by comments made by outgoing Federal Reserve
Chairman Ben Bernanke and by risk aversion but a major snowstorm
blanketing the Northeast of the United States kept trade thin.
    A heavy snowstorm and dangerously cold conditions gripped
the northeastern United States, delaying flights, paralyzing
road travel and closing schools and government offices across
the region. The governors of New York and New
Jersey declared states of emergency. 
    "You have a holiday week, which is always going to be pretty
light on volume and with most of the Northeast digging itself
out of the snowstorm, that has made activity especially light,
even for a holiday week," said Omer Esiner, chief market analyst
at Commonwealth Foreign Exchange in Washington, D.C.
    The dollar fell as low as 104.05 yen, but later erased
losses to last trade flat at 104.74 yen, remaining below
a five-year high of 105.44 yen set on Thursday. Japanese market
players are out for New Year holidays until next week.
    The dollar gained ground after comments made by the Fed's
Bernanke. The Fed is no less committed to highly accommodative
policy now that it has trimmed its bond-buying stimulus, he said
on Friday in what could be his last speech as Fed chairman.
 
    Bernanke, who steps down as head of the U.S. central bank at
month's end, gave an upbeat assessment of the U.S. economy in
coming quarters. But he tempered the good news in housing,
finance and fiscal policies by repeating that the overall
recovery "clearly remains incomplete" in the United States.
    The euro, the top-performing major currency of 2013, shed
0.6 percent to 142.38 yen, extending losses in the
wake of its 1.2 percent slide the previous day. The euro has 
retreated from a five-year peak of 145.67 yen set last Friday.
    "The rebound in the yen is carryover from yesterday's
sell-off in equities and we also saw U.S. bond yields pull back
from the higher end of their ranges," Commonwealth's Esiner
said. "Both of those factors provided investors an excuse to
book some profit on the yen's decline." 
    "With U.S. 10-year Treasury yields back at three percent, we
have already seen the yen pare some of its overnight gains and
it is trading well off its overnight highs," he said.
    The dollar index, which tracks the greenback against six
major currencies, was up 0.3 percent at 80.854, having
hit a two-week high on Thursday as a slew of generally positive
U.S. economic data reinforced expectations the Fed will continue
to move away from its bond purchases. 
    A measure of future U.S. economic growth rose last week to
its strongest since April 2010, while the annualized growth rate
stayed steady, a research group said. 
    "January is a bit of a messy month for foreign exchange,"
said Simon Smith, head of research at FxPro. "Volumes are still
thin ... things are very much driven by flows.
    "I don't think the yen is a one-way bet in 2014. The easy
wins have been had. Always the most run-over people in the
markets are yen bears."
    Smith expects dollar/yen to end the year at 109 yen per
dollar.
    Looking ahead, next week will include the release of the
minutes from the Federal Reserve's December meeting and key U.S.
labor market data.
    The Fed's minutes on Wednesday will be watched for signs
over how far the Fed may further reduce its bond-buying program.
Last month it said it would cut mortgage-backed securities and
Treasuries purchases by $10 billion to $75 billion a month.
    The Fed faces "immense" challenges now that it has reduced
bond-buying, and needs to be cognizant of a rapid rise in future
inflation, Philadelphia Fed President Charles Plosser, a voter
on monetary policy this year, said on Friday. 
    Meanwhile, the euro - whose second-half rally was driven by
factors such as euro zone banks repatriating funds to shore up
their capital bases and repaying cheap loans to the European
Central Bank - has retreated from a two-year high of $1.3892
touched last Friday.
    The euro hit a four-week low against the dollar of $1.3583
and was last at $1.3584, down 0.6 percent on the day,
according to Reuters data.
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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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