The euro hovered near this week's low against the dollar on Friday, as the market grew nervous whether the US Federal Reserve chief will indicate the possibility of imminent monetary stimulus later in the day. A fall in European and some other shares to four-week lows are also fraying traders' nerves after the single currency enjoyed a month-long recovery on hopes of more policy action to counter the debt crisis infecting Europe.
The yen strengthened against the dollar though traders said the move reflected month-end repatriation by Japanese exporters rather than speculation about a speech by Ben Bernanke, who will speak on "Monetary Policy Since the Crisis". "Market expectations on his Jackson Hole speech have receded a bit. He is unlikely to give clear signals as recent economic data has not been so bad," said Yunosuke Ikeda, senior FX strategist at Nomura Securities.
The euro stood at $1.2518, flat from late US levels and not far from its low so far this week, though it looks likely to end up on the month as hopes that the European Central Bank could start buying Spanish bonds to lower Madrid's borrowing costs have supported the currency.
Also supporting the euro were expectations that the Fed may start more asset purchases, dubbed QE3 in markets as that would be the Fed's third round of quantitative easing, at its next policy meeting on September 12-13. Money printing by the Fed is likely to cheapen the dollar and hence boost the euro but optimism for more stimulus steps to prop up growth have waned in the past couple of days.
Atlanta Fed President Dennis Lockhart, seen as a centrist voter on US monetary policy, also said on Thursday that it will be a "close call" when US central bank policymakers meet next month to decide whether to ease policy more. Some economists think the Fed might not start QE3 in September, a scenario that is likely to weigh on the euro. "We do not expect the Federal Reserve to start QE3 in September. If he signals that at his Jackson Hole speech, that would support the dollar though he may not give a clear stance ahead of the payroll data," said Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo, referring to the US employment report due on Friday next week.
While the euro has support around $1.2465 - this week's low as well as its tenkan line on the daily Ichimoku chart - the currency has been unable to rise above its seven-week high of $1.2590 hit last week. After a brief summer lull this month, the common currency is expected to face a real test from next month, as investors look to the ECB's next step to help Spain stand on its feet again to finance its debt.
The dollar fell 0.3 percent against the yen to 78.41 yen due to month-end selling by Japanese exporters, though it stayed within its familiar range of the past week or so. The yen showed no response to surprisingly weak Japanese industrial output data, which fell 1.2 percent in July despite economists' expectations of a rise of 1.7 percent.
One major victim of China's slowing growth, the Australian dollar, continued to underperform, hitting a fresh one-month low of $1.0276 on Thursday and last stood at $1.0292. Against the yen it also hit a fresh one-month low of 80.72 yen. On the Ichimoku charts, the Aussie is trading just above an important support of the cloud top against the dollar, at $1.0279 on Friday. Below that, one major support is its 38.2 percent retracement of its rise from June to early August at $1.0220.
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