The dollar hovered near record lows against the yen after measures taken by Japan to help companies deal with the impact of a strong yen proved ineffective, and concerns over the health of the global economy kept investors wary of risk. Major currencies held within recent ranges as markets sat tight ahead of a speech by Federal Reserve Chairman Ben Bernanke on Friday in which he will give his latest assessment on the US economy and may refer to additional steps to stimulate sluggish growth.
Last year, Bernanke used the meeting to bring up the idea of the central bank's $600 billion bond-buying programme that became known as QE2. That pumped money and led to a rally in stock markets and growth-linked currencies. "We think most people aren't looking for QE3 and are more bent towards an operation twist where the Fed would increase the maturity of its portfolio by buying longer-term assets," said Kiran Kowshik, currency strategist at BNP Paribas.
"The market does not seem to be expecting too much, so if Bernanke does take more decisive measures, the dollar should sell off broadly as it would support risk-seeking behaviour," he added. The dollar was down 0.2 percent against the yen at 76.50 yen, shrugging off Japan's announcement of a new credit line to facilitate companies' acquisitions of overseas firms and their procurement of energy and resources from abroad.
Traders reported bids on approach to 76.00 and exporter offers above 76.80. Dollar/yen hit a record low of 75.94 on Friday, but traders are wary of further dollar selling which may force the Japanese to intervene by selling yen for the second time this month to stem strength in their currency.
The yen had a brief sell-off after Moody's cut its rating on Japan, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies. Still, such cuts have had scant effect on yields as the vast bulk of Japanese debt is owned by the Japanese themselves. The euro pared early losses to trade with gains of around 0.2 percent for the day at $1.4462. Traders reported persistent demand from Asian sovereigns at lower levels with stops above $1.4480.
The euro recovered from a brief dip after the Ifo survey of German business sentiment came in below market expectations. . It also took within its strike a surprise drop in June industry orders. Traders said the euro's gains would be checked by ongoing concerns that the Greek bailout package may be in jeopardy and about the state of the global economy after weak data out of Germany. German Chancellor Merkel told her Christian Democrats and their Bavarian sister party, the Christian Social Union, she rejected any special demand from Finland for collateral.
The euro eased against the Swiss franc at 1.1415 francs, but held well above a record low hit earlier this month of 1.0075. Euro/Swiss one-month implied vols eased slightly, although they were supported at 17.5 percent. The threat of further easing measures from the Swiss National Bank was forcing options market players to stay long euro/Swiss franc vols, analysts said.
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