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FOREX-Yen bounces off lows but still seen vulnerable
November 26, 2013 / 4:56 AM / in 4 years

FOREX-Yen bounces off lows but still seen vulnerable

* Soft U.S. housing data pulls dollar/yen off 6-month high

* Yen near 4-yr low vs euro, 5-yr low vs sterling, 23-yr low vs Swiss franc

* Yen seen as best funding currency given BOJ’s commitment

* Euro resilient despite dovish comments from ECB

* Sterling capped by resistance, looks to BoE Carney’s comments

By Hideyuki Sano

TOKYO, Nov 26 (Reuters) - The yen got a slight reprieve on Tuesday, ticking up from a six-month low against the dollar after soft U.S. housing data, but the Japanese unit stayed near multiyear lows against European currencies.

The euro was resilient despite a setback on Monday following dovish comments from European Central Bank officials, while the British pound held steady as investors look to comments from Bank of England Governor Mark Carney later in the day.

The dollar was down 0.2 percent at 101.47 yen in Asia, having slipped from a six-month high of 101.915 yen hit on Monday, after data showed contracts to buy previously owned U.S. homes hit a 10-month low in October.

The data slightly undermined optimism that the U.S. economy is on solid ground, prompting profit-taking in the dollar, which had gained 1.9 percent versus the yen in just three sessions.

Still, the yen remains under pressure on the notion that the Bank of Japan’s commitment to an ultra-easy policy makes it the best funding currency for carry trades, with its weakness most notable against European currencies.

The euro sat near Monday’s four-year high of 137.98 yen, fetching 137.32 yen. Sterling hit a five-year high of 165.28 yen on Monday and last stood at 163.94 while the Swiss franc hit a 23-year high of 112.12 yen.

“The yen and the franc are both often considered as safe-haven currencies. The fact that the yen is at a two-decade low against the Swiss franc symbolises how weak the yen is at the moment,” said Minori Uchida, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ.

ECB

European currencies were also helped by signs the European economy is recovering slowly from the damage wrought by the sovereign debt crisis, although some market players were puzzled by the currencies’ strength given still-sluggish growth in the region.

The euro fetched $1.3530, up slightly from late U.S. levels and having pared more than half of its losses on Monday made after dovish comments from European Central Bank policymakers.

ECB Governing Council member Ardo Hansson, who heads the central bank of Estonia, was quoted as saying the ECB still has room to cut rates.

His comments followed dovish remarks from another Governing Council member, Christian Noyer, that interest rates have to remain low for an extended period and might go even lower if needed.

The common currency has been gyrating since last Wednesday’s steep drop on a media report the ECB was actively considering cutting one of its key interest rates to negative.

“Any hints on the possibility of a negative deposit rate are worth watching particularly closely after last week’s newswire reports suggested this was an option under consideration - probably a more palatable tool than QE for the Governing Council,” analysts at BNP Paribas wrote in a note to clients.

Speculation about further easing by the ECB is likely to rise if euro zone inflation data due on Friday suggests increased risk of deflation.

By contrast, sterling drew strength from expectations that the Bank of England could raise rates earlier than it has indicated.

The pound held firm after robust UK mortgage approval data on Monday, trading near an 11-month high on a trade-weighted basis at 83.8.

Against the dollar, it stood at $1.6165, having failed to pierce through stiff resistance around $1.6250 since October.

Bank of England Governor Mark Carney will answer questions about monetary policy and the economic outlook from lawmakers on Tuesday.

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