(Changes byline, dateline from previous LONDON; adds comment,
updates prices)
* Yen falls to 2-month low versus dollar
* Japan (EUREX: FMJP.EX – news) logs first trade deficit 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 yen slid to a
two-month low against the dollar on Wednesday after Japan posted
its first annual trade deficit since 1980, but markets were wary
of the U.S. Federal Reserve meeting and first-ever individual
rate projections from policymakers.
The Fed looks set to keep monetary policy on hold on
Wednesday, even as it releases individual forecasts expected to
show interest rates will be near zero for at least two more
years.
The Fed will release a statement outlining its views on the
economy and monetary policy 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).
“I would say that as is typical for a big event like this
afternoon’s FOMC, investors and traders will be hesitant to do a
whole lot in the run up to the event,” said Andrew Cox, G10
strategist at CitiFX in New York.
Despite speculation about what policymakers might say, Cox
added, “I think much of this is largely a distraction and does
not really change too much for the USD.”
Investors are looking for a potential nod to recent strong
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 78.24 yen, according to
Reuters data, its highest since late November (Stuttgart: A0Z24E – news) . The greenback was
last trading at 78.060 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.”
But Lee Hardman, currency economist at Bank of Tokyo
Mitsubishi UFJ, was skeptical the trade deficit would have a
lasting impact on the yen.
“With Japan running a sizeable and more stable investment
income surplus totalling close to 15 trillion yen in the twelve
months to November 2011 its current account balance has remained
firmly in surplus,” he said. “Recent yen weakness is more likely
corrective than a trend reversal. The Fed’s commitment to
maintain low rates will help cap dollar/yen upside potential.”
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 101.26 yen, 0.06
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
periphery debt, drove Italian yields higher.
“Uncertainty over the Greek debt talks and disappointment
that there has still been no deal is spoiling the party for the
euro,” said Audrey Childe-Freeman (Other OTC: FMNXF.PK – news) , EMEA head of currency
strategy at JP Morgan Private Bank.
“So despite the good IFO (sentiment) numbers, the euro is
not able to break past $1.3080 which is a good resistance
level.”
The single currency was last trading down 0.38 percent for
the day at $1.2971, 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 earlier this month and
in late December.
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
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 euro bailout package.
(Additional reporting by Anirban Nag in London; Editing by
Chizu Nomiyama)
