Dollar leaps against yen

The dollar strengthened against the yen and Swiss franc on Friday after a report showing US jobs growth gave investors courage to add to riskier trades financed by borrowing in low-yielding currencies.
But last week's sudden spurt of risk aversion, which knocked global equity markets lower and propelled the yen to a 3-month high against the dollar, still haunts investors, making them tread cautiously back into high-yielding currencies.
February payrolls growth was close enough to consensus forecasts and upward revisions to past jobs numbers, along with a narrower-than-expected US trade gap, allayed concerns about softness in the economy and whetted investor appetite for risk.
"A slightly lower US trade deficit and a labour market report in line with expectations was enough to restore investor confidence," currency strategists with BNP Paribas said in a note.
"Talk that 'carry is back' is making the rounds and the powerful rebound of yen crosses leaves the impression that last week's rise of capital market volatility was just a blip and not the start of a new trend," they added.
The dollar has risen 1.3 percent this week to 118.37 yen, erasing more than half of the losses incurred because of the shakeout in carry trades last week. The euro climbed 0.7 percent in the week to 155.16 yen.
Against the dollar, the euro edged down 0.1 percent from late Thursday to $1.3111. The greenback also firmed against the Swiss franc, trading up 0.5 percent to 1.2340 Swiss francs, while the euro climbed 0.4 percent to 1.6190 Swiss francs.
"It looks like people are feeling more comfortable that the spasm seen last week is receding," said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York. Analysts cautioned, however, that last week's sudden run-up in volatility, which pushed the yen to three-month highs against the dollar and pummelled global stock markets, may return.
High-yielding currencies, such as the New Zealand and Australian dollars as well as emerging market currencies, got a boost after the payrolls report, which showed jobs growth of 97,000 last month. Other data showed the US trade deficit narrowed to $59.1 billion in January.
The New Zealand dollar rose more than 1 percent to session highs of $0.6914. Against the yen, the high yielder was on pace for a 1.9 percent gain this week compared with last week's 6.3 percent decline.
Analysts say that it might be too early to call an end to the unwind of carry trades, especially since positions built up against the yen had become so extreme for so long. "The unwinding of established positions, especially carry, is likely to be a long process," said analysts at State Street Global Markets.
Speculative investors chopped their net short yen positions in half in the week ended Tuesday, according to data from the Commodity Futures Trading Commission.
Next week's US inflation and capital flows reports could test the mettle of investors ready to leverage up their carry trades.
Friday's jobs report caused traders to pare bets on a possible Federal Reserve interest rate cut by midyear, relieving some pressure on the dollar. US short-term interest rate futures fell after the labour data, showing chances for a rate cut by May at just 4 percent, against 22 percent on Thursday.