News Column

Dollar retreats into upper 103 yen zone as rally pauses

August 25, 2014

The U.S. dollar pulled back into the upper 103 yen zone in Tokyo on Tuesday morning as traders locked in gains following the dollar's rapid rise of the past few days on positive U.S. economic indicators and signs of a hawkish Federal Reserve.

At noon, the dollar fetched 103.84-93 yen compared with 104.00-10 yen in New York and 104.12-14 yen in Tokyo at 5 p.m. Monday.

The euro was quoted at $1.3204 and 137.10-11 yen against $1.3187-3197 and 137.19-29 yen in New York and $1.3186-3191 and 137.32-36 yen in Tokyo late Monday afternoon.

The dollar continued its gradual upward momentum from New York overnight in early trading before slipping back under 104 yen.

With no fresh news affecting the dollar-yen pair in Tokyo time, traders sold the U.S. currency against the yen to lock in gains, convinced by technical indicators that the dollar was slightly overvalued, said Toshiyuki Suzuki, senior market economist at the Bank of Tokyo-Mitsubishi UFJ.

But the dollar is still on an upward trend in the longer term as "the policy outlooks of the Fed, Bank of Japan and (European Central Bank) are now looking fairly clear-cut, with an interest rate hike by the Fed thought forthcoming, and the Japan-U.S. interest rate gap is set to widen," Suzuki said.

U.S. data due later in the day could help buoy the dollar in New York, with July's durable goods orders and August's consumer confidence data likely to show broad recovery in the economy.

The euro remained near 11-month lows against the dollar and flagged against the yen. The Ifo Institute's business climate index released overnight showed flagging sentiment among Germany's major firms in August.

"Eurozone consumer prices out this Friday are widely expected to show a slowdown in inflation, and traders will be paying close attention to the ECB's next policy meeting next week for hints about the kind of antideflationary easing the bank might carry out," Suzuki said.

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Source: Japan Economic Newswire

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