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FOREX-Dollar gains on yen as traders eye yield differentials
June 28, 2013 / 6:47 AM / in 4 years

FOREX-Dollar gains on yen as traders eye yield differentials

* Fed's Dudley and Powell play down worries of stimulus
tapering
    * Quarter-end adjusting seen helping lift euro

    By Lisa Twaronite and Ian Chua
    TOKYO/SYDNEY, June 28 (Reuters) - The dollar scaled a
two-and-a-half week peak against the yen in Asia on Friday, but
lost ground against the euro as last minute positioning ahead of
the end of the month and quarter helped the common currency.
    Two more Federal Reserve officials sought to play down fears
over the U.S. central bank's plan to gradually reduce stimulus,
but some strategists and market participants say yield
differentials still favouring the dollar, compared to the yen in
particular.
    "U.S. bond yields have come off a little bit in the last
couple of days, but I think the environment we're in is still
dollar-positive," said Mitul Kotecha, the global head of
foreign-exchange strategy at Credit Agricole in Hong Kong.
    While the benchmark 10-year Treasury yield was
lower on Friday, it remains not far from this week's high of
2.66 percent touched on Monday, which was its highest since
August 2011. 
    By contrast, the benchmark 10-year Japanese government bond
yield has remained mired in a range between 0.8
percent and 0.9 percent in recent weeks. 
    Japanese economic data on Friday signalled steady economic
growth, but economists believe it may take more time to achieve
sustained rises in prices even as the government's expansionary
policies are making some progress towards ending years of
entrenched deflation. 
    Japan's consumer prices stopped falling in May and labour
demand reached its strongest level in five years, but the BOJ's
two-year time frame for achieving its 2 percent inflation target
still appears overly ambitious.    
    Against the yen, the dollar advanced 0.4 percent to 98.75
 after rising to 99.03 yen earlier, its highest since June
11.     
    "Dollar-yen remains unstable ahead of next week's payroll
data," said Masashi Murata, senior currency strategist at Brown
Brothers Harriman.
    But he noted that concerns about China's credit crunch were
fading, as the Chinese central bank pledged to ensure reasonable
lending growth and market stability. 
 
  
    
    The dollar index, which tracks the greenback's performance
against a basket of major currencies, edged slightly down from
late U.S. levels to 82.853 , but was still not far
below Thursday's high of 83.171, a peak not seen since June 3.
    The index was on track for its second straight week of gains
and its biggest two-week rally since November 2011.
    The euro added 0.3 percent to $1.3064, pushing away
from Wednesday's four-week trough around $1.2983. 
    Investors turned positive on the dollar since Fed Chairman
Ben Bernanke last week laid out a roadmap for scaling back its
asset-buying stimulus programme if the economy continued to
improve. 
    The looming end of easy money sparked a sell-off in
equities, government bonds, emerging market assets and commodity
currencies.
    Downward revisions to U.S. first quarter gross domestic
product data on Wednesday curbed the dollar's rise, suggesting
that the Fed might hold off on tapering its stimulus. 
    Central bank policymakers also sought to soothe market
nerves this week. New York Fed President William Dudley and Fed
Governor Jerome Powell were the latest to do so, with Dudley
going as far as saying that recent market expectations for an
earlier rate rise are "quite out of sync" with the statements
and expectations of the policy-making Federal Open Market
Committee. 
    Sterling remained under pressure after Thursday's downward
revisions to GDP, and particularly business investment, bucked
the recent trend of improving data. The pound was down 0.1
percent at $1.5264, well off this month's peak of
$1.5751.    
    Data later in the day includes the Chicago PMI index, a
barometer of Midwest business activity, and the final reading of
U.S. consumer sentiment for June.

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