* Dollar supported by expectations of Fed's eventual exit
* Euro off low after euro zone PMI shows broad improvement
* Yen broadly softer after improved global risk sentiment
* Aussie falls after RBA says it is still high
By Hideyuki Sano
TOKYO, July 2 The dollar held firm near
four-week highs against a basket of currencies on Tuesday,
supported by expectations an end in U.S. monetary stimulus will
boost U.S. bond yields, pulling back investors who have been
seeking higher returns elsewhere.
The Australian dollar tumbled to a near three-year low after
the Reserve Bank of Australia kept the door open to interest
rate cuts and tried to talk down the currency.
"Expectations on the Fed's policy will probably go back and
forth, depending on upcoming economic numbers. Still, it seems
reasonable to think U.S. bond yields are gradually rising, which
should underpin the dollar," said a trader at a Japanese bank.
The dollar index stood at 83.045, almost flat on the
day and a tad below the four-week peak of 83.344 reached on
Friday, with support seen at 82.915, the bottom of the daily
The euro held firm for now at $1.3062 after a 0.4
percent gain on Monday, keeping some distance from last
week's trough of $1.29845, its lowest since early June.
The common currency was helped by Monday's euro zone
manufacturing reports, which showed encouraging signs out of
debt-burdened peripheral euro zone countries such
as Spain and Italy.
Nevertheless, the euro stayed below chart resistance at
$1.3106, the 100-day moving average, and the 200-day average at
The euro firmed against the yen to reach a
three-week high of 130.485, testing resistance around 130.45,
the 61.8 percent retracement of its May 22 - June 13 decline. It
last stood at 130.44.
FOCUS ON HIRING
The U.S. ISM report also rebounded from an unexpected
contraction in May.
But hiring was the weakest in nearly four years,
underscoring the challenges facing the U.S. economy. The Fed has
made unemployment a key barometer for when it might start
scaling back on asset buying.
Which is why the market is likely to become thinner and
thinner into the monthly payrolls report on Friday. A strong
reading would boost the dollar by fanning speculation about an
early paring back of the Fed's $85-billion-a-month bond-buying.
In contrast, the European Central Bank is likely to
emphasise at its monthly meeting on Thursday that the euro zone
economy still needs help.
The dollar ticked up 0.15 percent to 99.81 yen, near
a four-week high of 99.87 hit on Monday, thanks to improved risk
sentiment after solid manufacturing data from U.S., Europe and
Japan, though it has been unable to break strong offers in the
99.90/100.00 area for now.
Although the yen is seen under pressure from the Bank of
Japan's aggressive monetary easing, traders say the market may
need a fresh impetus to sell the Japanese currency after its
steep decline in the past half year.
Concerns over a slowdown in China and other emerging markets
could sour investors' risk sentiment and spark another rally in
the yen, as it did in May, said Takako Masai, forex manager at
"I do not expect the yen to sharply weaken beyond 100 per
dollar," she said, noting that two-year yield gap between the
two currencies remained small by historical standards, despite
recent rise in U.S. bond yields.
The Australian dollar fell 0.7 percent to $0.9172,
stepping back towards a three-year low of $0.9110 hit on Monday
after the RBA said the currency is still high, despite a 13
percent fall against the U.S. dollar since April.
It left the main cash rate steady at a record low 2.75
percent for a second month as expected.