FOREX-Yen approaches recent highs as stocks remain choppy

Wed Feb 5, 2014 9:55am EST

Related Topics

* Yen climbs towards 11-week highs vs dollar and euro

* U.S. Jan private job growth slightly short of forecast

* Sterling falls after below forecast UK PMI services data

By Anirban Nag and Richard Leong

LONDON/NEW YORK, Feb 5 (Reuters) - The yen rose on Wednesday towards recent two-month highs against the dollar and euro as stock markets struggled on nagging worries about emerging markets and global economic growth, forcing investors to seek safe-haven currencies.

Safe-haven demand for the yen was supported by a slightly below-forecast 175,000 gain in U.S. private job growth in January reported by ADP. This mildly weaker-than-expected labor indicator raised concerns the government's January payroll report might be weaker than expected, which in turn could add selling pressure on the dollar and stocks.

The latest ADP figure was "a mild disappointment, but it's not a big enough of a surprise to move the currency market," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.

The dollar briefly touched session lows against the yen after the ADP data before rebounding to match levels prior to that jobs report. The greenback was last 0.3 percent lower to 101.31 yen after falling as much as 0.85 percent earlier.

The euro shed 0.5 percent to 136.90 yen after hitting a session low 136.51 yen.

Both the dollar and euro fell to 11-week troughs on Tuesday, when the dollar hit a low of 100.755 yen and the euro fell as low as 136.25 yen.

Wall Street stocks opened lower with the Standard & Poor's 500 index last down 0.3 percent.

"Stock futures are falling, so that is helping the yen," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "The key will be the U.S. data, and any missing of forecasts will challenge the global recovery story and push dollar/yen towards the 100.60 support."

Before the release of ADP report, euro zone retail sales fell sharply in December, while the final composite PMI survey fell short of its initial reading.

Reflecting investors' nervousness, implied volatility in the dollar/yen and the euro/yen pairs - a gauge of how sharp swings will be in the currency market - remained elevated. One-week dollar/yen implied vols were trading at 11.4 percent, up from around 8 percent a week ago.

Against the dollar, the euro was slightly lower at $1.3510 , holding above a two-month low around $1.3477 set on Monday amid caution that the European Central Bank could sound more dovish at Thursday's policy review.

With inflation well below the ECB's target and the spectre of deflation gripping the euro zone, the central bank is under pressure to loosen policy. But there is also a risk the ECB may hold off, which could see the euro bounce.

Sterling fell 0.3 percent towards seven-week lows, and was last trading at $1.6280 after UK services PMI fell short of expectations and led investors trim expectations of a rate hike by the Bank of England in the near term.

"The softer-than-expected manufacturing PMI data on Monday and PMI services can be linked with the pound's poor performance, but we expect that many investors are adjusting their positions in response to the increased risk that the BoE is poised to re-affirm a dovish position," said Jane Foley, senior currency strategist at Rabobank in London.

The Bank of England will release its quarterly inflation report next week and is widely expected to reaffirm its pledge to keep rates low for longer and tweak its unemployment target.

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