The yen and the Swiss franc slipped on Tuesday as riskier assets like equities benefited from policymakers in the euro zone reaffirming their expansive monetary policy stance. Currencies such as the yen and the Swiss franc, which rose sharply last week after a recent sell-off in stock markets, typically gain in times of financial uncertainty.
Strategists also said markets were positioned for further Bank of Japan stimulus measures, which would continue to drag the yen lower. The dollar rose 1.0 percent to 102.00 yen, up more than a full yen from a two-week low of 100.66 hit on Friday and staying above technical support levels at 100.80 yen on Tuesday.
Reported option expires at 102.00 yen is expected to keep the currency pinned to these levels. While the US Federal Reserve looks set to pare backs its $85 billion-a-month stimulus programme, ECB policymaker Joerg Asmussen said on Monday the bank would stick to its expansive monetary policy for as long as necessary.
Asmussen's colleague Peter Praet was also quoted as saying the ECB could cut rates further to stimulate the economy if needed. "The recent strengthening of the yen has been fairly modest and we think this is more corrective in nature than a major change in trend... the underlying trend is further yen weakness," said Lee Hardman, currency economist at Bank of Tokyo Mitsubishi.
He expected the dollar to touch 105 yen in 6 months and 109 yen in 12 months and sees any dips in the dollar towards the 100 yen level as an opportunity to buy the pair. Some analysts said this move lower in the yen could be a knee-jerk reaction. Alvin Tan, currency strategist at Societe Generale expects the dollar to touch 108 yen by the end of the year, but warned in the near-term the yen could edge higher.
"We are bearish yen for the year... but near term we are concerned that the risk-off sentiment can extend further and so the yen can strengthen in the very near term," Tan said. Against the yen, the euro also gained 1.2 percent to 131.95 yen, pulling away from Thursday's trough of 129.95.
Like the Japanese currency, the safe-haven Swiss franc also fell against the dollar and the euro which were both up 0.5 percent against the Swiss franc at 0.9681 francs and 1.2523 francs respectively. The euro pared earlier losses to trade flat against the dollar at $1.2930 after an Italian bond auction saw its debt costs slip to their lowest level since the euro came into existence in 1999. Strategists, however, expect the euro, which has been trading in the $1.28-$1.32 range over the last few months, to slip lower due to the contrast in the monetary policies between the ECB and the Fed.
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