December 4, 2013 / 6:16 AM / 6 years ago

Yen still vulnerable; focus shifts to ECB meeting

SYDNEY (Reuters) - The yen held off a five-year trough on the euro and a six-month low versus the dollar on Thursday following a whippy session overnight that lacked conviction as key event risks including U.S. jobs data loomed.

A U.S. dollar note (bottom) is pictured alongside other currencies including (L-R) the Australian Dollar, Singapore Dollar, Korean Won and China's Yuan in this picture illustration taken in Washington, October 14, 2010. REUTERS/Jason Reed

The dollar bought 102.39 yen, having earlier this week risen as high as 103.38, while the euro traded at 139.06, not far from a five-year peak of 140.03 scaled on Tuesday.

Traders said the downtrend in the yen remained intact thanks to the Bank of Japan’s ultra-loose monetary policy and expectations that it will provide even more stimulus next year.

For now though, the focus is on the European Central Bank and Bank of England, a day after the Bank of Canada (BOC) held interest rates steady and sounded slightly more dovish in its outlook.

The Canadian dollar touched a 3-1/2 year low versus the dollar at C$1.0708, before steadying at C$1.0675.

“The bank started focusing more attention to downside risks to inflation in the last rate announcement and those concerns seem to have increased in intensity in today’s announcement,” JPMorgan analysts wrote in a note to clients.

Investors appeared reluctant to take major positions ahead of the ECB meeting. That saw the common currency drift roughly between $1.3528-$1.3606 on Wednesday, remaining stuck in this week’s $1.3524-$1.3616 range. It was last at $1.3588.

The ECB is widely expected to hold off any fresh policy action on Thursday, but new staff forecasts will be in focus for signs of prolonged price weakness that could lead it to act again next year.

In any case, BNP Paribas analysts said the euro could come under selling pressure given the ECB is likely to stay very dovish.

“The ECB’s December staff inflation projections are likely to be well below the ECB definition of price stability...the press conference should signal a continued easing bias,” they wrote in a client note.

The BOE is also expected to stand pat on policy but the sterling’s recent strength and its potential to hurt the economic recovery could see the central bank try to talk down the currency.

Sterling bought $1.6381, not far from a two-year peak of $1.6443 set earlier in the week.

Investors were also cautious ahead of the influential U.S. jobs report on Friday. Data on Thursday showed U.S. private-sector hiring rose in November at the fastest clip in a year, offering a brighter outlook for the labor market.

Any upside surprise in the payrolls report will no doubt keep alive expectations the Federal Reserve might start scaling back its massive bond-buying stimulus program later this month.

A man holds Japanese 10,000 Yen ($121) bank notes in front of a bank in Tokyo November 22, 2012. REUTERS/Kim Kyung-Hoon

That could lift the U.S. dollar and keep the pressure on commodity currencies like the Australian dollar.

The Aussie was among the biggest losers overnight after third quarter economic growth disappointed investors.

It skidded more than 1 percent and broke below 90 U.S. cents for the first time in three months. The Aussie was last at $0.9028, having fallen as far as $0.8999.

Editing by Eric Meijer

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