* Dollar index near its highest level in nearly 8 weeks
* Upbeat U.S. data helps lift dollar sentiment
* Dollar/yen hovers within sight of a 2-week high
(Adds comments, updates prices)
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, May 28 The dollar held steady
near an eight-week peak against a basket of major currencies on
Wednesday, having edged up on the back of encouraging U.S.
The dollar index last stood at 80.340, staying near a
high of 80.470 set on Tuesday, its highest level since early
Dollar bulls took heart after data on Tuesday showed orders
for long-lasting U.S. manufactured goods unexpectedly rose in
April and consumer confidence perked up in May.
Against the yen, the dollar held steady near 101.94 yen
, staying within sight of a near two-week high around
102.14 yen that had been set on Tuesday.
"I think it's okay to stick with a basic stance of buying
(the dollar) on dips," said a trader for a Japanese bank in
While Japanese exporters may sell the dollar going into the
month-end, those flows are not as large as they once were, the
On the other hand, there has recently been talk of some
yen-selling interest among Japanese investors, he said, adding
that flows out of Japan could help support the dollar versus the
Japan's trade deficits are seen as a supportive factor for
the dollar versus the yen over the medium term, as they suggest
that net foreign exchange flows generated by the country's
exports and imports are tilted toward yen-selling.
The euro held steady at $1.3636, having recovered
from a three-month low of $1.3612 plumbed on Tuesday.
Comments from European Central Bank (ECB) President Mario
Draghi again highlighted the bank's discomfort over persistently
low inflation and suggested some kind of policy action was
likely at its June 5 meeting.
At the final day of the ECB Forum in Portugal, Draghi said
the ECB was aware of the risks from prices remaining too low for
too long and the ECB was equipped to get inflation back to its
Traders said further downside for the euro will depend on
how aggressively the ECB acts to tackle the threat of deflation.
In the meantime, there is a risk of a short-covering bounce
in the euro going into next week's policy review, analysts at
BNP Paribas wrote in a note to clients.
"But our positioning analysis suggests markets have not yet
become overly short euro, and we suspect longer-term investors
with large euro exposures may be only beginning to consider
hedging away their euro risk," they said.
The New Zealand dollar slipped 0.2 percent to $0.8545
, having eased after a private survey showed that New
Zealand business confidence slid to a seven-month low in May.
Still, the current market backdrop remains a supportive one
for the New Zealand dollar, said Hamish Pepper, a currency
strategist for Barclays in Singapore.
Low implied volatilities, recent gains in U.S. share prices
and very accommodative monetary policies from major central
banks are all positive for carry trades, Pepper said.
"Taking a step back and just thinking about the environment
we're in currently, it is one that is still supportive of carry
currencies, and in G10 that is Aussie and kiwi," Pepper said.
Subdued market volatility and an increase in investor risk
appetite can help bolster demand for carry trades, in which
investors sell low-yielding currencies to fund investment in
higher yielding currencies and assets.
(Editing by Jan Paschal & Kim Coghill)