(Adds comment, updates prices)
* Yen falls to lowest versus dollar since early November (Stuttgart: A0Z24E – news)
* Japan (EUREX: FMJP.EX – news) trade deficit 1st since 1980, speculators pare back
yen longs
* Euro falls vs dollar as Greek worries offset strong German
IFO data
* Focus on Federal Reserve rate projections later in day
NEW YORK (Frankfurt: A0DKRK – news) , Jan 25 (Reuters) – The dollar firmed against
the euro and the yen on Wednesday ahead of a U.S.
Federal Reserve meeting and first-ever individual interest rate
projections from policymakers, while Japan’s first trade
deficit since 1980 fueled yen weakness.
The Fed looks set to keep monetary policy on hold, even as
it releases individual forecasts expected to show interest rates
will be near zero for at least two more years.
A statement outlining the Fed’s views on the economy and
monetary policy is slated for release at about 12:30 p.m. (1730
GMT). The rate projections, along with regular quarterly
economic forecasts, will be issued at 2 p.m. (1900 GMT).
Fed Chairman Ben Bernanke is due to hold a press conference
at 2.15 p.m. (1915 GMT).
With no interest rate changes expected, “I think for the
dollar the outcome of the Fed meeting should be more a function
of what it does to risk,” said Robert Lynch, head of currency
strategy for the Americas at HSBC (LSE: HSBA.L – news) in New York. “We need to see
the nuances of their statement.”
Speculation on what policymakers could say was rife, and
some investors and traders could be hesitant to take up
positions ahead of the meeting’s results, said Andrew Cox, G10
strategist at CitiFX in New York.
“I think much of this is largely a distraction and does not
really change too much for the USD,” he added.
Investors are looking for a potential nod to recent
strengthening in U.S. economic data, said Blake Jespersen,
managing director of foreign exchange sales at BMO Capital
Markets.
“It would be nice to see the Fed upgrade some of their
forecasts for growth. Markets want them to acknowledge that the
economy is improving,” Jespersen said.
The yen extended losses from the previous session as Japan’s
first annual trade deficit in more than 30 years called into
question how much longer the country can rely on exports to help
finance a huge public debt without having to turn to fickle
foreign investors.
The dollar reached as high as 78.28 yen, according to
Reuters data, its highest since early November. The greenback
was last trading at 78.21 yen.
“We’d like to see it hold above that level” of 78 yen,
Jespersen said. “We’ve seen a lot of accounts putting on short
yen trades.”
Chartists highlighted resistance posed by the 200-day moving
average at 78.33 yen and the 61.8 percent retracement of the
October-January fall at 78.31 yen.
GREECE JITTERS WEIGH
The broad weakness in the yen lifted the euro to a four-week
peak of 101.86 yen. It was last at 101.45 yen, 0.25
percent higher on the day in choppy trading but well above an
11-year low struck on Jan. 16.
The euro gave up gains against the dollar from a
boost on rising German business sentiment, as growing worries
that the European Central Bank would have to write down its
holdings of Greek debt, crimping its ability to purchase other
euro zone periphery debt, drove Italian yields higher.
“Investors are waiting for more definitive progress in talks
for private sector bondholders to take voluntary losses on Greek
government debt, while reports that the ECB remain opposed to
restricting its Greek debt holding is weighing on sentiment,”
noted Nick Bennenbroek, head of currency strategy at Wells Fargo (Dusseldorf: NWT.DU – news)
in New York.
The common currency has been supported against the dollar in
recent sessions by a squeeze in extreme short positions. A
decline in funding costs for Spain and Italy and recent data
showing surprising strength in manufacturing and services this
month have also lent support.
“Risk appetite generally is consolidating, easing a bit
following what had been a material rally in risk assets in
recent weeks,” HSBC’s Lynch (AMEX: LGL – news) said.
The euro was last trading down 0.38 percent for the day at
$1.2972, off a session high of $1.3051. It struck a
three-week peak of $1.3062 on Tuesday, with resistance in the
$1.3075-1.3080 area – highs struck this month and in late
December.
(Additional reporting by Anirban Nag in London; Editing by
James Dalgleish)
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