* Markets thinly traded before ECB, BOE meetings and US
* Political instability in Portugal weighs on euro, helps
* AUD jumps after RBA comments, though downtrend seen still
By Hideyuki Sano
TOKYO, July 4 The dollar held near a five-week
high against a basket of currencies on Thursday, steadying as
investors looked to a raft of potentially market-moving events,
including the European Central Bank's policy review and U.S.
Political instability in Portugal has weighed on the euro,
sparking a sharp fall in euro/yen, which in turn lifted the
Japanese currency across the board, though the move appears to
have run its course for now.
The dollar index edged up slightly to 83.285 ,
having hit a five-week high of 83.717 on Wednesday before
investors trimmed back long positions heading into a U.S.
holiday on Thursday.
The euro stood flat on the day at $1.3002, after
falling as low as $1.2923 at one point on Wednesday, its weakest
since late May, hit by jump in Portuguese bond yields.
Portugal's 10-year bond yield shot above 8 percent and its
stock market slumped 5 percent on fears a snap election could
derail Lisbon's exit next year from a bailout by the European
Union and International Monetary Fund.
"As long as the crisis is contained within Portugal, the
impact on broader markets will be limited. But if there is
contagion to Italy and Spain, then there would be big trouble as
Germany is unlikely to offer any strong support ahead of its
election in September," said Minori Uchida, chief FX analyst at
the Bank of Tokyo-Mitsubishi UFJ.
Overall, caution ruled given looming central bank meetings
in the euro zone and UK and the market so hyper sensitive to the
outlook for Federal Reserve policy.
No policy change is expected from the European Central Bank
later on Thursday but a jump in yields in Portugal, and other
periphery markets, should keep President Mario Draghi sounding
"Draghi is likely to emphasize that the growth outlook is
still subject to downside risk, that the ECB is ready to act and
that there are still tools in the toolbox," said JPMorgan
analyst Greg Fuzesi in a note.
"Draghi will also say that the exit from the current policy
stance is "very far away", "very distant" or some variant of
The Bank of England also has its first meeting under new
Governor Mark Carney, who took over just this week. There has
been some speculation he would break with convention and release
a statement even if the bank takes no action.
A swing higher in Treasury yields offered some support
to the dollar while U.S. data was too mixed to offer guidance on
when the Federal Reserve might start to taper its asset buying.
More important, of course, will be the payrolls report on
Friday and there was much talk in the market about the tendency
of the series to disappoint in June.
Over the last sixteen years the report has come in under
expectations 75 percent of the time with an average miss of
70,000. In addition, four of the last five June releases have
fallen short of expectations.
Forecasts for employment range from 125,000 to as high as
220,000, with a median at 165,000.
The dollar also eased slightly against the yen, which
benefited as investors sought shelter in the safe-haven Japanese
currency overnight from concerns in Europe.
Also helping the yen were events in Egypt, which are making
some investors risk-averse, as armed forces overthrew President
The dollar fetched 99.83 yen, almost unchanged from
late U.S. levels and off five-week high of 100.86 yen hit on
The Australian dollar jumped after Reserve Bank of Australia
deputy governor Philip Lowe said the market misinterpreted
comments by the bank's governor the previous day.
RBA chief Glenn Stevens had surprised traders by saying the
RBA board "deliberated for a very long time" before its decision
to keep rates on hold earlier this week, sparking speculation
the bank was much more close to cutting rates than markets had
The Aussie rose 0.4 percent to $0.9117, rebounding from a
fresh three-year trough of $0.9036 carved out the
previous day on speculation that interest rates could be cut