NEW YORK: The dollar recovered against the yen on Tuesday as investors took advantage of the previous day's cheapening to buy back the currency, while strength in Japanese stocks raised risk appetite and curbed the need to hold yen.
Further support for the dollar versus the yen, some analysts said, came from a Reuters report citing people with knowledge of the situation as saying the Japanese government would urge public pension funds controlling a pool of over $2 trillion to boost investments in equities and overseas assets.
The dollar was last up 0.5 percent at 100.04 yen, with traders citing option expirations at 100 yen that were likely to keep the pair pinned around that level. The greenback had fallen to a four-week low of 98.86 yen on Monday after a survey showed US factory activity fell in May to its lowest since June 2009.
The Nikkei index rebounded from early losses to close 2 percent higher, led by a 6 percent gain in financials. Japanese government bonds, meanwhile, sold off and the 10-year yield rose 6 basis points to around 0.88 percent.
"There was a squeeze on long dollar positions, but we know that wasn't going to last because the long-term bullish outlook on the dollar is well entrenched," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.
On short-term technical charts, however, signals suggested the dollar's rally against the yen was temporary.
Camilla Sutton, chief currency strategist at ScotiaBank in Toronto, said the 50-day moving average around 99.12 yen was providing support and a close below this level would accelerate selling. But a close above Monday's opening price of 100.57 yen would remove some of the downside pressure, she added.
The dollar index, a measure of the greenback's value against six major currencies, recovered to trade 0.3 percent higher at 82.876.
A US manufacturing survey on Monday dimmed prospects of the Federal Reserve scaling back monetary easing soon, even though two Fed policymakers said on Monday the US central bank could taper its stimulus in the coming months if data improved. The report from the Institute for Supply Management had triggered a sell-off in the dollar.
With the Fed pledging to maintain stimulus until the labor market improves, US jobs numbers due on Friday will be under intense scrutiny.
The jobless rate is forecast to remain steady at 7.5 percent in May with the economy expected to add 170,000 jobs compared with 165,000 in April. A disappointing number could trim long dollar bets while better-than-expected data would give the US currency a boost.
The euro was last down 0.1 percent at $1.3064, off a peak of $1.3107 reached on Monday, its highest since May 9. Euro zone producer prices fell further in April, marking the biggest month-on-month decrease in nearly four years and keeping alive chances of more interest rate cuts by the European Central Bank.
The week's big euro focus will be the ECB's monthly meeting on Thursday, at which officials are expected to hold interest rates steady. But a post-meeting press conference by ECB President Mario Draghi will come under scrutiny for clues on the prospects of a rate cut.
"Generally speaking, the euro looks set to continue to outperform this week, especially into the European Central Bank policy meeting on Thursday," said Christopher Vecchio, currency analyst at DailyFX in New York.
"There has been growing chatter that the ECB could implement negative rates in order to help stoke the region's depressed and increasingly frozen credit flow, but that seems unlikely to me right now," he said.
The Australian dollar was down 1.6 percent at U$0.9614 after the Reserve Bank of Australia held rates at 2.75 percent and governor Glenn Stevens said easing was still on the table.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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