Dollar gains on yen

The dollar rebounded modestly against the euro on Thursday but remained near a record low as markets braced for a US interest rate cut and rose against the yen amid political and economic uncertainty in Japan.
Against a basket of major currencies, the greenback languished near a 15-year low and hit a 30-year trough against the Canadian dollar as oil rose to new highs above $80. The dollar has been under pressure since last week's unexpectedly weak US jobs report fed speculation that the Federal Reserve may cut the 5.25 percent federal funds rate by as much as half a percentage point at a September 18 meeting.
"There are many factors weighing on the dollar," said Joseph Trevisani, market analyst at FX Solutions in Saddle River, New Jersey. "The Fed is expected to cut rates and I'm sure they will. Also, the market thinks the credit and subprime problems are centered in the United States and will do the most damage to the US economy. I'm not sure that's true, but that's the perception right now."
To that end, investors will watch Friday's US retail sales report for signs of weaker consumer spending, which could increase pressure on the dollar.
The euro was last at $1.3885, pushed down 0.15 percent by profit-taking ahead of Friday's data but still near a record high of $1.3927 hit earlier in the global session. Traders also said options-related barriers in the $1.3950-$1.40 area were slowing the euro's steady rise.
The dollar bucked the trend against the yen, rising nearly 1 percent to 115.25 yen. The euro also hit a one-month high at 160.48 yen, according to Reuters data, before easing to 159.98 yen, up 0.8 percent. Analysts said uncertainty created by the resignation of Japanese Prime Minister Shinzo Abe, speculation about his replacement and reports that Japan will downgrade its view on the economy in Friday's monthly economic report all weighed on the yen.
Those factors weakened the case for a Bank of Japan rate hike this month, prompting investors to re-enter carry trades that use cheaply borrowed yen to buy higher-yield assets. Analysts, meanwhile, said the near-certainty of a Fed rate cut helped lift US stock prices and whet risk appetites.
"People are feeling a bit bolder," said Dixon Fung, head of currency trading at MG Financial in New York. But the market's main focus remained on a weak dollar. Last week's data showing the first decline in US monthly payrolls in four years suggested the economy may be feeling the heat of a housing slump and a credit crisis sparked by losses on bonds backed by risky mortgages.
Exposure to risky mortgage debt has also hit the balance sheets of some European banks. But so far, European Central Bank officials have appeared at ease. While the bank held rates steady last week, officials also said they continue to watch inflation and are keeping all options open, suggesting euro-zone rates are more likely to rise than fall.
Lower interest rates and slower growth combine to diminish the allure and return of dollar-denominated assets. The Swiss National bank also surprised investors on Thursday by hiking interest rates by a quarter-percentage point, saying its economic outlook had not changed much.
The Swiss franc failed to get much mileage out of the move, though, and was last down 0.2 percent at 1.1866 per dollar. The Canadian dollar hit a 30-year high at C$1.0313 per US dollar as oil prices continued to surge.