* Dollar index recoils from 7-month highs
* Yen in limbo as market looks to "new" BOJ
* Sterling jumps as market covers large short positions
* Euro off 3-month low but seen vulnerable
By Hideyuki Sano
TOKYO, March 15 The rally in the dollar paused
on Friday as sterling enjoyed a short squeeze and the yen was
propped up by profit-taking in the U.S. currency after Japan's
parliament approved new leadership at the Bank of Japan, as
The dollar index eased slightly to 82.533, further
retreating from a seven-month peak of 83.166 hit the previous
day, though it is up nearly 5 percent from its Feb. 1 trough of
Japan's parliament approved Prime Minister Shinzo Abe's
nominee for central bank governor, Haruhiko Kuroda, and nominees
for the two deputy governor posts, clearing the way for radical
monetary easing Abe has long pressed for.
But the yen did not budge much for now as hopes for fresh
easing were offset by short-covering in the Japanese currency
from one way bets against the yen in the past few months.
The dollar fetched 96.03 yen, almost flat from late
U.S. levels. The currency pair has been trapped in a narrow
trading range since it scaled a 3-1/2-year peak of 96.71 on
Tuesday, as many investors looked to the BOJ's next steps.
"What the BOJ will do should set the dollar/yen's future
trading range for a long time. The range could be 86-96 yen (if
the BOJ disappoints), in which case, we are now near the top of
the range. Or it could be 95-105 yen," said Takako Masai, head
of forex at Shinsei Bank in Tokyo.
Kuroda's pledge to "act with speed" and do whatever it takes
to hit the BOJ's new inflation target has some investors
speculating he may summon a meeting even before the next
scheduled policy review on April 3-4. They will take over the
current leadership on March 20.
Analysts suspected the greenback could continue to gain
ground, particularly against the yen, sterling and euro as the
U.S. economy outperforms.
Data showing a fall in the number of Americans filling new
claims for employment benefits was the latest in a string of
data painting a brighter outlook for the world's biggest
If that continues, it is likely to fuel market speculation
of when the Federal Reserve will start to slow its asset buying
and give dollar bulls a reason to get really excited.
"The exit debate will heat up in the second half of the
year," said Sebastien Galy, a strategist at Societe Generale.
"The U.S. economic outperformance and the fears of a
not-too-distant Fed exit imply that the dollar is no longer a
funding currency of choice in the carry trade."
The dollar's rally was curbed, however, also as the British
pound surged as investors scrambled to cover short positions
made on expectations of more quantitative easing by the Bank of
Bank of England Governor Mervyn King said the bank was not
seeking a further depreciation in sterling and that the currency
was now properly valued.
Traders also said the pound could have been helped by
sovereign buying and media reports about Qatar planning to
invest billions of pounds into key infrastructure projects in
The move in sterling gathered momentum as buy-stops were
tripped, driving the currency up more than 1 percent on
Thursday, its biggest daily gains in over seven months.
The pound last traded at $1.5090,, slightly above
late U.S. levels and well off a 33-month trough of $1.4832 set
earlier in the week.
The euro bounced to $1.3010, also slightly up from
late New York trade and well above a three-month trough of
$1.2911 set on Thursday, partly cheered by solid demand for
Spanish long-term bonds at an auction.
Still in addition to concerns over the sluggish euro zone
economy, political instability in Italy could hamper the
currency as the new Italian parliament convenes on Friday for
the first time after inconclusive elections late last month.