* Yen selling eases a bit, but more downside seen
* Euro eyes Italian & Spanish govt bond auctions
* Sterling hit by woeful UK manufacturing data
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, March 13 The yen's sell-off paused
on Wednesday but expectations of radical policy easing from the
Bank of Japan meant further weakness was likely, while dour UK
manufacturing data consigned sterling to the dog house.
The dollar fell 0.2 percent in Asia to 95.85 yen,
yielding to profit-taking after having scaled a 3-1/2-year peak
of 96.71 yen on Tuesday, where it had brought its year-to-date
gains to more than 10 percent.
"There's no change in the big downtrend in the yen. In the
near term, the dollar/yen may fall further on profit-taking but
I would say 94.50 is as low as it can go at most," said a trader
at a European bank.
Minutes of the BOJ's February meeting showed on Tuesday
policymakers were more open to adopting unorthodox policy
options of the incoming governor than previously thought,
suggesting the BOJ can push through aggressive stimulus easily.
"JPY should continue to remain under pressure on growing
expectations of aggressive and potentially earlier easing coming
through from the BOJ," said Kiran Kowshik, strategist at BNP
While investors took a bit of profit in the embattled yen,
they turned up the heat on sterling, which slumped to a fresh
33-month low of $1.4832 on Tuesday before slightly
recovering to $1.4933, up 0.2 percent on the day.
Against the Australian dollar, the pound was near lows not
seen since 1985. It last stood at A$1.4473.
Sterling's decline came after data showed British
manufacturing output fell in January at the fastest pace since
June, reinforcing fears the economy has tipped into its third
recession since the 2008 financial crisis.
"Chancellor of the Exchequer George Osborne will present his
budget next week and reports have emerged that the BOE's remit
could be changed to allow additional QE despite high-running
inflation," said Christopher Vecchio, analyst at DailyFX.
"Should this occur, the next leg lower in Gilt yields could
be around the corner, which could put further downside pressure
on sterling. We still find that GBP/USD should fall to $1.4200
Meanwhile, the euro stood at $1.3030, well within the
$1.2955-3135 range seen so far this month. Traders said the
market was waiting for the outcomes of government bond sales in
Italy and Spain due this week for fresh cues.
Italy will offer three-year and 15-year bonds at an auction
later on Wednesday, while Spain plans to sell bonds due 2029,
2040 and 2041 at a special, off-calendar auction on Thursday.
Traders said any signs of funding stress in the euro zone's
third and fourth largest economies will no doubt weigh on the
A steady euro and the yen's pullback kept the dollar index
off its seven-month high hit last week following strong U.S.
The dollar index stood at 82.51, down slightly on the
day and below Friday's peak of 82.924, with immediate focus on
U.S. retail sales data due at 1230 GMT.
While a strong reading could fuel speculation that the U.S.
Federal Reserve may wind up its stimulus, some traders also say
the market's expectations of an end in the Fed's quantitative
easing might be premature.
"It is not like the Fed will exit from the QE at its next
policy meeting. It's true the Fed board members are debating it
but a lot of voting members on the Fed's policy board are
dovish," said Katsunori Kitakura, associate general manager of
market making at Sumitomo Mitsui Trust Bank.
The Australian dollar stood not far from a 2-1/2-week high
of $1.0336 hit on Tuesday, though initial resistance is
seen around $1.0350-70, a level that capped the currency in
With Australia's relatively high yield and the Reserve Bank
of Australia in no hurry to cut interest rates soon, the Aussie
appeared to be back in favour for now.
Asia faces a dearth of major economic news on Wednesday. In
Europe, consumer inflation data in France and Spain and
industrial production in the euro zone are due.