The euro slipped in Asian trade on Thursday, moving further away from both a seven-week high against the dollar and a 7-1/2-month high against the yen hit in the previous session, as investors awaited a European Central Bank policy meeting. "Ahead of the ECB meeting, the dollar and yen are being bought back after the euro's rise,' said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The longer term outlook for the yen was undermined by expectations of pressure on the Bank of Japan to take further easing steps following an election on December 16. The latest Japanese polls on Thursday showed Shinzo Abe's opposition Liberal Democratic Party on track to secure a majority.
"Polls today showed the LDP is expected to do well, which suggests downside for the yen," Ino said. "Comments from the BoJ's Nishimura yesterday suggested that the bank is considering further easing even with the election outcome yet unknown." BoJ Deputy Governor Kiyohiko Nishimura said on Wednesday the central bank will debate whether its monetary easing in September and October was enough to support the economy, which may be undershooting its projections.
"Politically, LDP leader Abe has softened his aggressive stance on monetary policy. However, we remain bearish on JPY over the medium term, and will look to increase our JPY short once positioning looks less stretched," analysts at Citigroup wrote in a note. Citi has reduced its underweight yen position primarily because currency traders have become increasingly short since mid-November.
The euro rose as high as $1.3127 on Wednesday on the EBS trading platform, its highest since mid-October. It was last buying $1.3056, down about 0.1 percent from late US levels. The euro will probably hold its value against the dollar over the next month after rallying over the last few weeks, but a persistently weak euro zone economy will put it under pressure next year, according to the latest Reuters poll.
Concern about the ongoing US budget crisis has also tempered the euro's gains, as the European unit tends to rise with risk appetite. The euro was also down about 0.2 percent against the yen to 107.58 yen, after hitting a 7 1/2-month high of 107.95 yen on Wednesday.
The yen was slightly up against the dollar, which last stood at 82.43 yen, well shy of its 7-1/2 month high of 82.84 yen hit last month, with an options barrier said to lie at 83 yen. Hedge funds were still buying 3- and 6-month dollar calls, betting on a weaker yen, a Japanese bank trader said. The Australian dollar jumped against its US counterpart after a surprisingly strong jobs report prompted investors to reduce expectations of further policy easing. The Aussie hit a session high of $1.0480, close to a two-month peak of $1.0491 hit last week, to last trade at $1.0464, up about 0.1 percent on the day.
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