June 4, 2013 / 11:21 AM / 7 years ago

FOREX-Dollar recovers against yen after sharp sell-off

* Dollar recovers, moves back to 100 yen

* Japan to urge public pension funds to up overseas holdings

* U.S. jobs report key to dollar positioning

By Jessica Mortimer

LONDON, June 4 (Reuters) - The dollar recovered from a four-week low against the yen on Tuesday with the yen hurt by a report that Japanese pension funds could increase overseas holdings.

Sources told Reuters the government would urge public pension funds - controlling a pool of more than $2 trillion - to increase investments in equities and overseas assets.

The dollar was up 0.5 percent at 100.10 yen, with traders citing option expiries at 100 yen likely to keep the pair pinned around that level. It had fallen to a four-week low of 98.86 yen on Monday after a survey showed U.S. factory activity fell in May to its lowest since June 2009.

The ISM survey dimmed prospects of the Fed scaling back monetary easing soon, even though two Fed policymakers said on Monday the central bank could taper its stimulus in the coming months if data improved.

With the Fed pledging to maintain stimulus until the labour market improves, jobs numbers due on Friday will be under intense scrutiny.

“The market is very nervous at the moment because everyone is trying to get their heads around when the Fed will reduce QE,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

He said the comments on Japan’s pension fund helped the dollar against the yen but added “more positive dollar news” would be needed to push it significantly higher.

Analysts and fund managers said further dollar weakness was possible as investors took profit on hefty bets it would strengthen.

“Dollar’s rise back to 100 yen is impressive but people will be cautious heading into payrolls,” said Ian Gunner, portfolio manager at Altana Hard Currency Fund. “Long dollar/short yen has been a popular trade and it is vulnerable to any repricing of QE being tapered off.”

The U.S. jobless rate is forecast to remain steady at 7.5 percent in May with the economy expected to add 170,000 new jobs, compared with 165,000 in April. A disappointing number could see long dollar bets being cut while a better-than-expected data would give the U.S. currency a boost.

The dollar index was up 0.1 percent at 82.717 after sliding as much as 1 percent to 82.428 on Monday.

The euro was 0.1 percent higher at $1.3085, off a peak of $1.3108 reached on Monday, its highest since May 9. Euro zone producer prices fell further in April, marking the biggest month-on-month decrease in nearly four years and keeping alive chances of more interest rate cuts by the European Central Bank.

The Australian dollar was down 1 percent at $0.9675 after the Reserve Bank of Australia held rates at 2.75 percent and governor Glenn Stevens said easing was still on the table. .

Additional reporting by Anirban Nag, editing by Nigel Stephenson and Chris Pizzey, London MPG Desk, +44 0207 542-4441

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