* Dollar supported by expectations for more Fed tapering
* WSJ says Fed could announce further tapering next week
* German ZEW may offer some support to the euro
By Anirban Nag
LONDON, Jan 21 The dollar gained against the yen
on Tuesday, helped by U.S. Treasury yields rising on renewed
talk that the U.S. Federal Reserve may announce a further
reduction of its bond-buying stimulus next week.
The euro fell against the dollar to $1.3535, with
focus on German ZEW survey due for release at 1000 GMT, which
could give some indication on how sentiment is holding up at the
start of the year in the euro zone's largest economy.
A better-than-expected number could nudge the euro higher,
but rallies will be sold into given widespread expectations that
the European Central Bank will keep policy accommodative and may
even cut rates if money market conditions tighten.
While the euro rose against the yen, it was the U.S.
dollar's advance that was grabbing attention. The dollar was up
0.5 percent at 104.72 yen, bringing it closer to possible
resistance near 104.92 yen, an intraday high hit on Jan. 16.
The dollar/yen pair has a robust correlation with U.S.
two-year yields. The rate-sensitive two-year yields
rose after the Wall Street Journal said in its online edition
that the Fed may announce a further reduction to its monthly
bond purchases at the end of its Jan. 28-29 policy meeting, to
$65 billion from the current $75 billion.
Such a reduction would be in line with the prevailing market
expectations in a recent Reuters survey. Still, traders
said the WSJ article was enough to help nudge the dollar higher
against the yen.
"We do share the view that monetary policy in the U.S. will
be less accommodative and that is helping the dollar against the
yen," said Manuel Oliveri, FX strategist at Credit Agricole.
"On the yen side, there is some positioning that the Bank of
Japan may sound move dovish at the end of its policy meeting
this week. We actually expect them to upgrade growth forecasts
and that could actually see some correction in the dollar/yen in
the short term. In the medium term we expect the pair to rise."
Key for the yen this week is the outcome of the Bank of
Japan policy meeting due on Wednesday. The BOJ is expected to
retain a wait-and-see approach, having last year launched a
massive stimulus programme.
Meanwhile, the New Zealand dollar gave up gains made in the
Asian session after inflation data strengthened the case for
higher interest rates at home.
"Even if a rate hike is delivered over the months ahead, the
Reserve Bank of New Zealand is likely to talk down the markets
expectations for further hikes which we view leaves the New
Zealand dollar looking vulnerable at current levels," BNP
Paribas said in a note.
The New Zealand dollar last changed hands at $0.8306
, down 0.15 percent. It had risen to $0.8339 after
fourth-quarter consumer price index rose 0.1 percent, beating
forecasts for a 0.1 percent fall.