(Changes "weakness" regarding yen in 16th paragraph to
* San Francisco Fed's Williams say Fed could end QE this
* Dollar index near its July peak
* Aussie and Kiwi skid, led by yen cross selling
* Dollar/yen near 4 1/2-year high, euro/dollar near 6-week
By Sophie Knight and Hideyuki Sano
TOKYO, May 17 The U.S. dollar held firm near a
10-month high against a basket of currencies on Friday after a
regional Fed chief said the U.S. central bank could begin easing
up on stimulus this summer, sharpening the high-yielding
The remarks by John Williams, the president of the Federal
Reserve Bank of San Francisco, moved markets as investors see
his thinking similar to that of the Fed's top officials such as
Chairman Ben Bernanke and Vice Chair Janet Yellen.
"At the previous policy meeting, the Fed essentially said
whether it will reduce or expand its bond buying is 50-50. But
markets are now suspicious that Bernanke may signal it's
something like 55-45 when he testifies in the congress on May
22," said Minori Uchida, chief FX analyst at the Bank of
The dollar index , which measures the
currency's value against a basket of six major currencies,
gained 0.4 percent to 83.901, approaching a 10-month high of
84.094 set on Wednesday.
A break of its July peak of 84.100 could open the way for a
test of 84.929, a 76.4 percent retracement of its fall from 2010
peak of 88.708 to near a three-year low of 72.696 hit in 2011.
But Mitsubishi's Uchida said barring further evidence the
Fed is moving towards scaling back stimulus, the dollar index
could peak out around the current level.
"U.S. bond prices gained sharply yesterday despite William's
comments. Each market has its own interpretation now and there's
no broad consensus on the Fed's stance yet," he said.
Speculation about the Fed's possible exit from stimulus is
having the most pronounced impact on the Australian dollar,
which has enjoyed the status of highest-yielding major currency
Having already lost 2.1 percent on the week by late U.S.
levels, the Aussie skidded further on Friday, shedding
0.6 percent to $0.9759 to an 11-month low. If it closes below
$0.9871, it would mark its first weekly close below its 200-week
average since July 2009.
The currency's 5.7 percent tumble this month accounts for
nearly all of its 6 percent loss on the year, as a fall in
commodity prices in recent months raises concerns about a
slowdown in China, the biggest buyer of Australia's natural
Implied volatilities on the Aussie have shot up in the past
few days, with one-month volatility near an eight-month high
, suggesting investors are expecting mercurial trade
"We've been seeing some Japanese selling in the kiwi and the
Aussie, and we see some profit taking on yen crosses," said Tim
Kelleher, head of institutional FX sales at ASB.
Against the yen, the Australian dollar lost 0.4
percent to 99.87, its lowest since May 2. The New Zealand dollar
sagged in sympathy, dropping 0.5 percent to 82.89 yen
"The kiwi has an overhang of some stale longs, so the risk
is that the kiwi will fall harder and faster than the Aussie,"
The New Zealand dollar suffered a 0.7 percent drop against
the greenback to $0.8101, its lowest in six months.
Despite its strength against the Antipodean currencies, the
yen was relatively steady against the dollar, which fetched
102.290 yen, near Wednesday's 4-1/2-year high of 102.77
Patchy U.S. data is still blunting the dollar's gains, with
Thursday a case in point. Factory activity in the U.S.
mid-Atlantic region contracted in May as new orders fell to
their lowest level in almost a year, while new claims for
jobless benefits spiked.
It was a fall in jobless claims data last week that helped
the dollar over the psychological and technical hurdle of 100
yen. The next block of resistance lies around 103 yen, analysts
"Exporters now have a lot of stops around 103, so although
it's close it actually seems quite far away," said Kenichi
Asada, manager of FX at Trust & Custody Services Bank.
"But like the 100 level, which a lot of people said it
wouldn't reach due to the stops around 99.5, it might break
through- possibly if there is something more concrete about the
end of QE in the FOMC minutes released next week."
A resurgent dollar pushed the euro near a six-week low.
The common currency stood at $1.2860, near a six-week
low of $1.2843 touched on Wednesday.
(Editing by Eric Meijer and Sanjeev Miglani)