March 20, 2013 / 8:46 PM / 5 years ago

FOREX-Dollar rises vs yen after Fed; euro comes off lows

* Dollar jumps to session peak vs yen after Fed
    * Euro rises from four-month low against dollar
    * Cyprus seeking financial deal with Russia

    By Wanfeng Zhou
    NEW YORK, March 20 (Reuters) - The U.S. dollar rallied
against the yen on Wednesday after a decision by the Federal
Reserve to continue its aggressive monetary easing fueled
optimism about the U.S. economic recovery.
    The euro rebounded from a four-month low against the dollar
as immediate fears about a financial meltdown in Cyprus eased,
with the small island country pleading for a new loan from
    The Fed said it will continue to buy $85 billion in mortgage
and Treasury bonds per month despite growing concerns about the
risks the purchases could pose. It said unemployment remains too
high and fiscal policy has become somewhat "more restrictive,"
likely referring to the government's hefty spending cuts.
    The dollar initially trimmed gains versus the yen and fell
further versus the euro after the Fed statement. But it quickly
reversed those moves and rallied to a session high versus the
yen as U.S. stocks climbed.
    "It's positive for risk appetite. The stock market will
benefit from continued ultra-accommodative monetary policy,"
said Michael Woolfolk, senior currency strategist at BNY Mellon
in New York. "There's been nothing in the policy statement to
suggest any type of change in the Fed's stance."
    Gains in stocks tend to weaken the yen as investors borrow
in the low-yielding Japanese unit and use the proceeds to invest
in assets with greater returns. The prospect of further monetary
easing in Japan added to the allure of the yen as a funding
    The prospect of the U.S. economy outperforming its rivals
also bolstered the appeal of dollar-denominated assets among
foreign investors. 
    The dollar rose to a high of 96.13 yen according to
Reuters data, edging back toward a 3-1/2-year high of 96.71 set
last week. It last traded at 96.03 yen, up 1 percent on the day.
    The euro rallied 1.4 percent to 124.23 yen. The
Australian dollar and sterling both gained about 1 percent
versus the yen.
    The U.S. central bank's meeting came as turmoil in Europe
took another turn for the worse. Cyprus ordered banks to stay
shut until next week as the government scrambled to come up with
another plan after rejecting the terms of a bailout from the
European Union. 
    Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange in Washington, said the Fed's pledge to keep its foot
on the gas pedal of monetary easing, while inherently negative
for the dollar, should help the U.S. economy outpace its major
    "The resulting upside for U.S. assets should continue to
spur demand for the greenback," he said. "Moreover, the mounting
uncertainty in the euro zone continues to contrast the improving
backdrop in the U.S. and should add to the dollar's appeal as a
safe harbor from political and economic volatility abroad."
    Against the dollar, the euro rose 0.4 percent to
$1.2917, rebounding from $1.2843 set on Tuesday, it's lowest
since late November.
    Analysts said the euro benefited from expectations European
leaders will eventually find a solution to the Cyprus crisis,
and noted there were few signs of instability in the bond
markets of Spain and Italy.
    Cyprus announced an unprecedented plan to impose taxes on
citizens' savings over the weekend, sparking fears that larger
European countries such as Spain and Italy might do the same
should they need financial aid.
    Stephen Jen, a managing partner at London-based hedge fund
SLJ Macro Partners in London, said while the Cypriot decision
set a dangerous precedent for Europe, this episode has not
triggered bank runs elsewhere in Europe.
    "To the extent that the case of Cyprus sets an example for
the governments and the regulators in the peripheral countries,
more care may be exercised now to reduce the chances of these
countries finding themselves in a similar situation as Cyprus."
    Some strategists said the European Central Bank's assurance
on Tuesday that it was committed to providing liquidity to
Cypriot banks within certain limits also helped the euro.
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