May 16, 2013 / 6:56 AM / in 5 years

FOREX- Dollar holds close to 4-1/2 yr high vs yen; further strength seen

* Dollar recovers after soft U.S. manufacturing-driven fall

* Euro steady after slumping to six-week low as euro zone economy contracts

* Kiwi edges up 0.1 pct as pressure from dollar eases

* Yen could strengthen to 95 against dollar by June-strategist

By Sophie Knight

TOKYO, May 16 (Reuters) - The dollar held close to a 4-1/2 year high against the yen on Thursday, with buying from Japanese importers helping it to recoup some of the losses suffered after disappointing U.S. industrial data, while the euro wobbled near a six-week low.

The greenback tacked on 0.1 percent to 102.37 yen, pushed up by investors eager to buy on the dip as further upside is seen for the dollar, according to a trader at a major bank.

“Importers are getting desperate, so as soon as the dollar is sold off a little bit they come in to buy around 102, which keeps it from falling too far,” he said.

Against a basket of currencies, the dollar gained 0.1 percent to 83.825, but could not reclaim the near 10-month peak it fell from on Wednesday when data showed U.S. industrial production dropped more than expected in April, while the New York Fed’s business conditions index revealed a contraction in May.

The dollar is now up 0.9 percent on the week after adding 1.3 percent last week.

Recent chatter in financial markets about the possibility of the Federal Reserve winding down its third round of quantitative easing has emboldened dollar bulls.

“Of course data releases will impact the dollar, but the real focus is the Fed’s QE3 programme. People will be watching statements from officials today and Bernanke at the weekend very closely for hints on when they might exit,” said Yoshio Takahashi, currency strategist at Barclays in Tokyo.

“The data just shows that the U.S. economy is not uniformly strong, so there is uncertainty about when they could stop easing,” he added.


The euro wallowed near a six-week low of $1.2843 hit on Wednesday after data showed France had slipped into recession, while the euro zone economy contracted for a sixth consecutive quarter.

On Thursday, the common currency was 0.2 percent off late U.S. levels at $1.2866.

It was steady against the yen at 131.751, but analysts said it was unlikely to top the 3-year high of 132.78 hit on Tuesday, given that the European Central Bank said it could cut the deposit rate to zero if the region’s economy deteriorates further.

“Compared to the strengthening U.S. economy the euro economy is stagnant. I think the euro has a lot of room to fall from here- we feel that it has diverged from fundamentals a bit much,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

On Thursday, the Australian dollar dropped 0.6 percent to $0.9838, shattering support at 0.9850, while the Kiwi reclaimed 0.1 percent to $0.8246.

The Aussie has lost 5.1 percent this month, with its fall sharpened by a surprise rate cut from the central bank, while the Kiwi has dropped 3.6 percent.

By comparison, the yen has tumbled 18 percent against the dollar this year, helped by aggressive monetary easing by the Bank of Japan. If it does not rebound in the remaining seven months of this year, the dollar would mark its best year against its Japanese counterpart since 1979, when it gained 23.7 percent.

Brown Brothers Harriman’s Murata believes the yen could rebound as BOJ’s “easing has lost its potency as a market driver, and there are demerits to a weaker yen such as rising import prices.”

“In fact, we think the dollar could drop back to 95 yen by the end of June, and we see the base of its year-end range as 90 yen,” Murata said.

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