FOREX-Yen drifts higher, China's yuan massaged lower

Tue Feb 25, 2014 6:29pm EST

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* Yen edges up in subdued session for major currencies

* U.S. data mixed, nudges U.S. yields lower

* China's yuan falls sharply on suspected PBOC moves

By Ian Chua

SYDNEY, Feb 26 (Reuters) - The yen was broadly firmer early on Wednesday following a generally lacklustre session that saw investors give the dollar a wide berth on the back of a decline in U.S. Treasury yields.

The dollar index was at 80.136, after nudging 0.1 percent lower with some traders pointing to mixed U.S. data as a reason for its fall.

The dollar has largely been contained in tight ranges over the past week as traders sought more clarity on the pace of recovery in the U.S. economy, particularly after a recent run of weak data raised a few concerns.

While much of the soft data has been blamed on bad weather, the next few months should provide firmer evidence of whether the world's largest economy is merely steering through a minor blip or facing bigger hurdles.

Consumer confidence drifted lower this month and a measure of regional manufacturing took a dive, offsetting solid gains in home prices.

"The overall impression of a soft first quarter is likely to remain very much in place, keeping U.S. yields low and anchored and leaving currency market participants wary of adding long USD exposure," analysts at BNP Paribas wrote in a client note.

The greenback shed 0.3 percent against the yen and last stood at 102.20. The euro firmed a touch to $1.3744 but was still well within a slim $1.3685/1.3774 range seen for a week now.

Against the yen, the common currency eased to 140.45 , extending its pullback from a one-month high of 141.29 touched on Friday.

The standout currency overnight was the partly-convertible yuan, which has seen a surge in volatility on suspected moves by China to curb betting on its currency ahead of reform.

The dollar was last at 6.1266 compared with levels closer to 6.0600 just a week ago.

The Australian dollar, a liquid proxy for China plays, last traded around 90 U.S. cents, having eased a third of a cent overnight.

Traders expect little action in Asia amid a dearth of economic news with investors probably take their cues from equity markets. In Europe, a report on German consumer morale will be released along with Italian wage inflation.

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