* Dollar, euro at 1-month highs vs yen
* Macro funds seen selling yen as Japan logs first deficit
since 1980
* Euro supported ahead of Fed Reserve
By Anirban Nag
LONDON, Jan 25 (Reuters) – The yen dropped to
one-month lows against the dollar and the euro on Wednesday, as
speculators and investors took data showing Japan had logged its
first annual trade deficit since 1980 as a cue to unwind bullish
bets in the Japanese currency.
The euro inched up against the dollar with the focus now on
the Federal Reserve. The U.S. central bank is expected to begin
a new practice of announcing policymakers’ interest rate
projections when a two-day meeting ends later on Wednesday.
Economists polled by Reuters expect the Fed will signal that
it is unlikely to start hiking interest rates until the first
half of 2014, more than five years after chopping them to near
zero. Any surprise on the dovish side could see the dollar come
under pressure against the euro and the yen, analysts said.
“U.S. yields have pushed up in recent days and if data there
continues to improve we would see the dollar supported,” said
Geoff Kendrick, currency strategist at Nomura.
“But the risk is the Fed could be more dovish than what the
market is expecting in which case you might see the dollar pull
back. In any case, I do not see dollar rising to 80 yen.”
The dollar reached as high as 78.009 yen on trading
platform EBS, its highest level since late December. Selling in
the yen picked up after Japan logged an annual trade deficit in
2011 for the first time in over 30 years.
Traders cited offers from Japanese exporters above 78 yen
although many expect selling in the Japanese currency to gather
pace on steady unwinding of yen long positions placed by
speculators, with model and macro funds also looking to sell.
Still, Takuji Okubo, chief economist at Societe Generale in
Tokyo, was sceptical that the trade deficit would have a lasting
impact on the yen.
“Japan’s current account balance is still in surplus, as the
income from Japan’s vast foreign assets, both direct investment
as well as its security investments, is more than offsetting the
deficit from trade. In addition, capital flows are much more
important for the yen than trade flows,” Okubo said.
Chartists said the dollar would have to battle a wall of
resistance posed by the 200-day moving average at 78.35 yen and
the 61.8 percent retracement of the October-January fall at
78.31.
EURO STEADY
The broad weakness in the yen saw the euro hit a four-week
peak of 101.64 yen. The pair was trading above 109 yen
as recently as November, before falling to an 11-year low of
97.04 on Jan. 16.
Many Japanese exporters set their euro rate targets at 105
yen, so the pair would run into heavy selling pressure ahead of
that level, traders said.
The euro was supported ahead of the U.S. Federal Reserve and
German IFO data. The key German indicator is likely to show
marginal improvement in economic expectations and business
climate.
The common currency has fared reasonably well against the
dollar in recent sessions, benefitting from a squeeze in extreme
short positions. A decline in funding costs for Spain and Italy
and recent data that have showed a surprising strength in
manufacturing and services this month have also lent support.
Portugal also eased market jitters after its prime minister
said the country was not seeking to renegotiate or extend its 78
billion euros bailout from its creditors.
The single currency fetched $1.3034, marginally
higher from late New York levels and not far off a three-week
peak of $1.3063 struck on Tuesday.
However, with no definite outcome on Greece’s debt swap
talks and the threat of the country’s ratings being cut to
‘selective default’ by Standard Poor’s, the euro’s outlook
remains uncertain.
The Australian dollar gained 0.4 percent to $1.0518
, coming close to a three-month peak of $1.0574 set
earlier in the week bolstered by improved risk appetite and a
higher-than-expected reading of underlying inflation.
