* 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 Sophie Knight
TOKYO, March 15 The dollar took a break from its
recent sprint 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 expected.
The dollar index pulled back slightly to 82.501,
further retreating from a seven-month peak of 83.166 hit the
previous day, though it is up 4 percent from its Feb. 1 trough
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 the
radical monetary easing Abe has long pressed for.
But the yen had barely flinched by late Asian trade as hopes
for a fresh burst of easing were offset by short-covering in the
Japanese currency from one way bets against the yen in the past
The dollar fetched 96.11 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. He and the new deputies
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 economy
that has prompted market speculation of when the Federal Reserve
will start to slow its asset buying.
However, few market players expect that to be discussed as
early as next week's Federal Reserve Open Committee meeting.
"The most likely outcome of the FOMC is no policy change,
but investors will be looking out for an improvement in the
Fed's economic outlook," said Etsuko Yamashita, chief economist
at Sumitomo Mitsui Banking Corp.
"But while the recent data has been great, the fiscal issues
remain, so market players might have to pare back their recent
POUND SQUEEZES UP
The dollar's rally was partly curbed by a surge in the
British pound 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 $1.5097,, a whisker above
late U.S. levels and well clear of a 33-month trough of $1.4832
set earlier in the week. However, analysts were not confident it
would continue to recover beyond the $1.5 level
"Weakness in the British economy means easing is still on
the table, while further strength in the dollar could hurt it
further," said Jun Kitazawa, senior vice president at Brown
"Against other regions, Europe still has a lot of tail
risks... it's not just Italy with problems."
The euro could face turbulence as the new Italian parliament
convenes on Friday for the first time after inconclusive
elections late last month, which added to existing concerns
about the sluggish euro zone economy.
However, partly cheered by solid demand for Spanish
long-term bonds at an auction, the common currency bounced to
$1.301 on Friday, up from late New York trade and well above a
three-month trough of $1.2911 set on Thursday.