* Prospect of Fed stimulus winding down boosts dollar
* Euro holds above chart support after German Ifo
* China worries push Australian dollar to 33-month low
NEW YORK June 24 The dollar rallied against a
basket of currencies on Monday, trading near its highest in
almost three weeks on rising anticipation that U.S. monetary
stimulus will be scaled back in the near term.
The shift in sentiment is prompting more investors to unwind
bets that the Fed was not ready to end its bond buying program,
known as quantitative easing. The unwinding could take months.
Though the dollar is not up across all pairs, it has been
since Federal Reserve Chairman Ben Bernanke said last Wednesday
that the U.S. central bank could taper its monthly $85 billion
in asset purchases if the economy continues to improve. U.S.
bonds and stocks, meanwhile, have sold off since the Fed
The U.S. dollar swung between gains and losses against the
yen, but sold off as the New York session began with investors
considering the recent five-day advance had gone too far, too
The dollar earlier rose against the Japanese currency after
Bank of Japan Deputy Governor Kikuo Iwata said the central bank
still has options for monetary easing, if need be.
The dollar's gains against the euro were tempered by a
survey showing a small increase in German business morale, which
helped keep the single currency above key chart support.
"These flows reflect the repositioning toward a new Fed
reality and begin a new trend for the U.S. dollar," said Camilla
Sutton, Chief FX Strategist at Scotiabank in Toronto. "The
violence of the market moves should begin to settle in the
The dollar index was up 0.2 percent at 82.590 after
rising as far as 82.841, its highest since June 5. The gains
added to last week's 2.2 percent rally, its biggest weekly rise
since November 2011.
Bernanke's comments have helped push up the benchmark
10-year U.S. Treasury note's yield to its highest in
almost two years on Monday with interest rate differentials
moving in favor of the dollar.
The dollar was down 0.3 percent at 97.58 yen, below
an earlier peak of 98.70 - its highest since June 11. The
strength in the yen against the dollar was seen as spillover as
it rose against euro, analysts said.
The euro last traded down 0.5 percent at 127.78 yen
Changes in the price of the dollar against the yen were
mostly in response to moves in European stocks. After investors
digested comments from the BOJ's Iwata, the dollar surrendered
gains as investors traded on other factors.
Iwata, a vocal advocate of reflationary policies, said that
if the Japanese central bank were to boost asset purchases in
the future, he would favor government bonds over risky assets,
given the size of the vast market for Japanese government bonds,
"The problem the Japanese are having is that talk is not
enough," said Joseph Trevisani, chief market strategist at
WorldWideMarkets, in Woodcliff Lake, New Jersey. "As the euro
goes down against the yen, it is very difficult for the Bank of
Japan, with their record, to control."
The euro was last trading down 0.2 percent at $1.3092
after dropping as low as $1.3058, a level not seen since June 5.
Expectations of tighter U.S. monetary policy contrast with a
risk of more interest rate cuts in the euro zone and aggressive
monetary easing in Japan.
The BOJ stunned financial markets on April 4 by setting in
motion an intense burst of monetary stimulus, promising to
double its bond holdings in two years and boost purchases of
risky assets in an attempt to jolt the economy out of deflation.
Rate differentials between 10-year Treasury notes and
similarly-dated German Bunds have moved in favor
of the former, with spreads at their highest since April 2010.
Analysts at Morgan Stanley, who recently recommended selling
the euro with a target of $1.28, have lowered their entry level
for the trade to $1.3180. A break below the 200-day moving
average would be a bearish signal, they said.
The 200-day simple moving average is $1.3072, according to
Volume picked up as the New York session began with $3.5
billion in euros changing hands globally with six hours of
trading left on Monday, using Reuters Dealing data. Some $2.3
billion in yen traded.
The higher-yielding Australian dollar, which is
sensitive to concerns about growth in China, recovered from an
earlier 33-month low. The Australian dollar was last up 0.4
percent at $0.9250 after falling as low as $0.9145.
A recent spike in interbank borrowing costs have raised
fears that stress in China's banking system could weigh on
already slowing growth.