* Focus on Fed policy meeting next week
* Dollar surrenders gains vs yen, but bids seen at 103 yen
* Tight liquidity helps euro; banks to repay LTRO cash early
* Swiss franc hits 30-year high vs yen
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 13 The dollar rose for a second
straight session against the euro on Friday, as investors began
pricing in the possibility that the U.S. Federal Reserve could
announce a small reduction in its massive stimulus at next
While market participants in general expect the Fed to start
paring back its stimulus no later than March, a growing number
expect a reduction in the Fed's asset purchases may be announced
at the central bank's Dec. 17-18 policy gathering.
"The bond market and, increasingly, the dollar, are
beginning to price in a higher risk of a modest move by the Fed
next week," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington.
Esiner cited Thursday's strong U.S. retail sales number and
this week's budget agreement in Washington, which removed the
risk of another showdown over government spending early next
"The budget deal greatly reduced the fiscal headwinds cited
by Fed officials in the past as a hurdle to the removal of
monetary accommodation," he added.
Europe's economy, in contrast, remained sluggish compared to
that of the United States. Thursday's soft euro zone industrial
output was a stark reminder of the 17-member group's economic
challenges and kept the risk of further easing from the European
Central Bank on the table.
In late New York trading, the euro fell 0.15 percent against
the dollar to $1.3731. On the week, however, Europe's
common currency was still up 0.2 percent, its best weekly gain
The dollar index was just above the break-even point on the
day at 80.214.
Against the Swiss franc, the dollar edged up 0.1 percent to
0.8897 franc. The greenback gained against sterling,
which fell 0.3 percent to $1.6296.
The dollar, however, gave up its gains versus the yen after
hitting five-year highs of 103.92 yen in Asian trading,
its highest level since October 2008. In late New York activity,
the dollar fell 0.20 percent at 103.15 yen.
On the week, the dollar posted minor gains of just 0.2
percent against the yen, but it was the strongest weekly
performance since early November.
Marshall Gittler, head of global FX strategy at IronFX
Global, who thinks the Fed will begin tapering next week, said
he expects dollar/yen to reach 130 yen by the end of next year
as Japan's economic struggles come to the fore.
The euro also hit a five-year peak against the yen at
142.81, but was last down 0.35 percent at 141.64 yen.
So far this year the dollar has gained 19 percent against
the yen while the euro has risen 24 percent, on expectations the
Bank of Japan will provide even more stimulus next year.
The euro in general has been resilient despite recent poor
economic data, as two-year swap rates rose to their highest
levels in a month. The European Central Bank said on Friday
banks will return 22.65 billion euros of crisis loans to it next
week, above analysts' forecasts, tightening liquidity in the
Citi strategist Valentin Marinov said this can help push the
euro higher for now, but it isn't positive for the euro
longer-term as tightening liquidity hits lending and growth.
The yen earlier slumped to a three-decade low against the
Swiss franc, with some attributing the broad-based decline to a
resumption of its role as a conduit for carry trades, given the
Japanese central bank's continued commitment to an ultra-easy
The franc has been buoyed by Swiss banks repatriating money
before the year-end. The Swiss franc rose to 116.68 yen
, its highest level since early 1983 in Asian trading.
But in the New York session, the Swiss franc has retraced its
gains to trade 0.25 percent lower to 115.91 yen.