* Dollar index hovers near 14-month high
* Dollar/yen edges towards 6-year high
* Euro crawls off lows ahead of ECB policy review
(Adds details, quotes)
By Shinichi Saoshiro and Ian Chua
TOKYO/SYDNEY, Sept 3 The dollar hovered at
14-month highs against a basket of major currencies on
Wednesday, underpinned by stronger-than-expected U.S. data and a
resulting rise in Treasury yields.
The greenback received further support from a sell-off in
the yen, which neared a six-year low against its U.S.
counterpart, and in sterling, pummelled by opinion polls
suggesting growing support for Scottish independence in a
referendum later this month.
The dollar traded near an eight-month high of 105.28 yen
. A rise above 105.45 yen would take the dollar to a high
not seen since October 2008.
The sell-off in the yen coincided with renewed hopes about a
highly anticipated portfolio change in Japan's behemoth
Government Pension Investment Fund (GPIF), stirred by the
forecast appointment of reform-minded Yasuhisa Shiozaki to head
the ministry that oversees the fund.
Due to be announced in coming weeks, the GPIF asset
allocation overhaul is expected to see the fund move into
riskier assets including stocks and foreign bonds, which could
increase demand for foreign currencies.
The reshuffle is due to be announced later on Wednesday but
the likely names have been widely discussed in the media.
The spike in intra-day volatility that jerked dollar/yen out
of a well-worn 101-103 range marks an end to the summer lull.
"Expectations were mounting for the dollar to move higher
and participants were waiting for a trigger. It was a little
surprising to see such a big reaction to Shiozaki's appointment.
But for forex market players like us, the reason is not
important as long as currencies move," said Bart Wakabayashi,
head of currencies at State Street in Tokyo.
"Large moves in dollar/yen catch the attention of retail day
traders, who appear to be showing a renewed interest in trading
after the long lull. They tend to first enter the market with
dollar-buying trades ... They are a force to be reckoned with,"
The dollar index moved within reach of the 14-month
peak of 83.039 scaled overnight after data showed U.S.
manufacturing activity hit a near-3-1/2-year high last month and
construction spending rebounded strongly in July.
"This only reinforces our bullish U.S. dollar view premised
on a relative pick-up in the U.S. economy, some more front-end
rate support for the dollar ... as rates re-price to the Fed's
own forecasts," analysts at JPMorgan wrote in a note to clients.
They added that low euro zone inflation and the risk of a
more activist European Central Bank (ECB) further supported
their upbeat dollar view.
The U.S. two-year Treasury yield jumped to a
one-month high and the benchmark 10-year yield
posted its biggest daily rise in a month after the data, in turn
helping the greenback.
Sterling extended losses to mark a five-month low of $1.6465
after slumping 0.8 percent overnight on a poll that
showed growing support for the "yes" vote in the referendum.
The euro, which briefly plumbed a one-year low of $1.3110
, staged a modest recovery to $1.3135, helped by a rally
in euro/yen to a two-month high of 138.255.
But euro bulls are likely to tread cautiously ahead of an
ECB meeting on Thursday, with the market split on whether the
central bank will take more immediate stimulus steps to stave
off deflation and the economic fallout from the Ukraine crisis.
French President Francois Hollande and ECB chief Mario
Draghi agreed on Monday that low inflation and weak growth were
threatening the European Union's economy, an official in the
president's office said.
(Editing by Eric Meijer and Alan Raybould)