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Wed 21 Sep 2011 12:45 PM

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Dollar fell close to a record low against yen

Greece's pledge to bring forward painful austerity steps gives the euro a bit of reprieve

Dollar fell close to a record low against yen
(AFP/Getty Images)

The dollar fell close to a record low against the yen on Wednesday,
pressured by Japanese exporters and stop-loss selling, but later pared losses
in choppy trade as traders grew wary of possible yen-selling intervention.

The dollar dipped to as low as about 76.11 yen at one point on trading
platform EBS, nearing a post-World War Two record low of 75.941 yen hit in
August.

Strong selling by Japanese exporters into the 9 p.m. ET Tokyo fix helped
trigger stop-loss selling below the previous day's low near 76.35 yen and later
below 76.20 yen, and dragged the greenback lower, traders said.

Shortly after hitting its intraday low, the dollar spiked up from around
76.20 yen or so to an intraday high of 76.86 yen in a matter of seconds.

But the dollar later lost some steam, and traders said its spike higher was
unlikely to have been caused by any Japanese intervention.

"Market players are probably just wary about the possibility of
intervention because of the levels we are at," said a trader for a major
Japanese bank in Tokyo.

There was vague talk that British and French names piled in to buy the
dollar as it spiked higher.

The dollar last stood at 76.35 yen, down 0.2 percent from late US trading on
Tuesday.

Earlier, ahead of the sudden spike in dollar/yen, there was talk of large
dollar bids between 76.20 yen to 76.00 yen, while stop-loss dollar offers were
cited at 75.90 yen, just under the dollar's record low.

The dollar has slid 5.2 percent against the yen so far this quarter, the
biggest quarterly drop since a 5.6 percent drop in July-September 2010, its
drop accelerating after the US Federal Reserve pledged last month to keep
interest rates low for 2 years.

The yen has also climbed broadly on the crosses, with Aussie/yen down 9.1
percent so far this quarter, on investors jitters about the possibility of
Greece defaulting on its debt, the impact of the euro zone's debt crisis on the
European banking sector and an economic slowdown in the United States.

"With risk appetite remaining fragile, the yen is one of those currencies
that continues to benefit," said Callum Henderson, global head of FX
research for Standard Chartered Bank in Singapore.

The euro and the dollar both surged against the Swiss franc, with traders
saying the rise in euro/Swiss gained steam on stop-loss buying and as traders
took aim at option barriers that had been lurking between 1.2250 and 1.2300
francs.

The latest drop in the Swiss franc came in the wake of its slide the
previous day on talk that the Swiss National Bank was looking to lift its euro/Swiss
intervention target to 1.25 francs from 1.20.

The euro rose 0.5 percent against the Swiss franc to 1.2225, having risen
more than 1 percent at one point to a 2- month high of 1.2320 francs. The euro
faces resistance at its 200-day moving average near 1.2361.

The single currency held steady against the dollar at $1.3701, more than a
cent above the previous day's low of $1.3593.

The euro had gained a lift on Tuesday due to position squaring ahead of the
US Federal Reserve's policy decision on Wednesday.

Greece's pledge to bring forward painful austerity steps also gave the euro
a bit of reprieve.

The news seemed to have relieved investors who have been worried about the
growing prospect of a Greek default due to the nation's failure to meet the
fiscal goals of its bailout. Greece needs to receive by next month an €8bn ($11bn)
aid package to avoid running out of cash.

"[The euro] was a bit oversold and there was a paring in those
positions. No one wants to be over committed ahead of the FOMC," said Rob
Ryan, foreign exchange and interest rate strategist at BNP Paribas in
Singapore.

Analysts expect the Fed to unveil a plan to rebalance the Fed's portfolio to
push down longer-term interest rates, in an option sometimes referred to as
"Operation Twist.

Such a move could push investors into stocks and corporate bonds and away
from safe-haven Treasuries, but analysts said it may take something bolder to
have more than a fleeting effect.

"The general expectation is that the Fed will do Operation Twist. It's
extremely unlikely that that's going to be enough to support risk appetite on a
sustained basis," said Henderson at Standard Chartered.

"If that is all they do, we're going to see risk sell off the next few
weeks," he said.