May 9, 2013 / 8:56 PM / in 5 years

FOREX-US dollar vaults 100 yen mark to 4-year high

* US dollar jumps to over 4-year high versus yen
    * US jobless claims fall to lowest in more than 5 years
    * Spanish yields rise, weigh on euro

    By Julie Haviv
    NEW YORK, May 9 (Reuters) - The U.S. dollar soared to its
highest level against the yen in over four years on Thursday
after signs the American labor market improved further and in
the wake of renewed debate by Federal Reserve officials about
scaling back bond buying.
    The dollar, up 16 percent against the Japanese currency so
far this year, started climbing after data showed U.S. claims
for unemployment benefits fell to the lowest level since January
2008, suggesting the Federal Reserve is making progress in
reducing the jobless rate. 
    The dollar gains accelerated late in the session though as
options barriers strongly defended over the past month were
taken out. Currency investors also chose to fund purchases of
emerging market currencies by selling the yen, a trader said.
    Speculation that Japanese investors may have participated in
a 30-year U.S. Treasury bond sale also favored dollar strength,
according to Vassili Serebriakov, fx stratgist at BNP Paribas in
New York.
    "People for weeks have been anticipating Japanese flows into
the U.S. and the increase in indirect bids for the 30-year bond
sale raised speculation that they were buyers," he said. "Having
said that, there was not a fundamental trigger today, although
the U.S. jobless claims data contributed to dollar strength."
    "The fact that the dollar hit 100 yen is really not
surprising, but once it was broken, dollar gains accelerated,"
he said. "A lot of options barriers were broken at 100 yen mark
and short covering also came into play."
    Investors place stop-loss orders as a way to protect their
portfolios from outsized losses. 
    "Defense of the 100-yen barrier was weak this time around,
so traders took advantage and zoomed ahead," said Sebastien
Galy, currency strategist at Societe Generale in New York.
    "We see further upside in dollar/yen now that that barrier
is gone," he said.
    Option-related hedging is a large source of activity in the
spot, or cash, currency market. When prices in the spot market
trade in a relatively narrow price range, as dollar/yen has over
the past month, demand for options tend to accumulate around the
price range.
    When that range was broken on Thursday, options investors
were forced to come to the market and trade in the direction of
the breakout, either to unwind hedges or to cover exposures 
created by the price break, or both.
    The dollar rallied to 100.79 yen, its highest since April
2009. It last traded at 100.58 yen, up 1.6 percent on the
day and its biggest one-day gain in a month, according to
Reuters data.
    The state of the U.S. jobs market is a key factor for the 
Federal Reserve. The central bank may opt to taper its $85
billion a month in bond purchases as unemployment falls towards
its 6.5 percent target. Federal Reserve officials again debated
the merits and timing of the central bank's bond buying program
on Thursday. 
    The Bank of Japan, on the other hand, last month announced 
plans to buy $1.4 trillion in bonds to buoy its deflation-prone
    The euro, meanwhile, faltered against the U.S. dollar after
two days of gains, pressured partly by a weaker-than-expected
Spanish debt auction, which served as a reminder to investors
that the outlook for the euro zone's weaker nations remained
    The euro fell to a session low of $1.3009, its lowest
since April 26, failing to build on gains made after robust
industrial data from Germany this week. It was last at $1.3038,
down 0.9 percent on the day.
    Against the yen, the euro last traded 0.7 percent higher at
    Spain's borrowing costs rose on Thursday to 4.19 percent on
speculation the country was planning a syndicated deal in the
near future, suggesting there would be a lot of supply in a
short period of time. Spanish yields have risen in
four of the last five sessions.
    Market participants were unwilling to hold euros for a
longer period given the threat of more monetary easing from the
European Central Bank, a move that should further erode yields
on bonds issued by euro zone sovereigns.
    Bundesbank chief Jens Weidmann on Thursday said the ECB is
still able to take policy action to address the euro zone crisis
even after cutting its main interest rate last week, a German
newspaper reported. This follows remarks from ECB policymakers
Yves Mersch and Joerg Asmussen, who said on Wednesday the
central bank still had room to maneuver on interest rates should
the euro zone economy continue to weaken. 
    The ECB cut its main rate to 0.5 percent last Thursday.
    While German industrial data this week beat expectations,
overall economic activity across most of the euro zone remains
sluggish, keeping alive expectations the ECB may act again soon.

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