The dollar rose to the highest level in a week against the yen on Wednesday on signs of future buying of Tokyo stocks by Japan's state pension fund, but edged lower against the euro on traders' view that the Federal Reserve is maintaining a dovish stance.
The dollar rose against the yen after Japan's Finance Minister, Taro Aso, promised that "moves" by the $1.26-trillion government pension fund would become apparent from June, which helped boost the Nikkei stock index 3 percent. "The fact that it's the finance minister discussing it and that a timeline has been put on it- June is not very far away-both of those (facts) are significant," said Shahab Jalinoos, currency strategist at UBS in Stamford, Connecticut.
The inverse relationship between the Nikkei share index and the yen is well established. Foreign players traditionally sell the yen to hedge the currency risk in buying Japanese shares while a stronger Nikkei typically makes Japanese investors more comfortable with investing abroad, also negative for the yen. The dollar's slight dip against the euro, meanwhile, was the first in four trading sessions. The dollar fell slightly against the euro ahead of Federal Reserve Chair Janet Yellen's comments before the Economic Club of New York after traders braced for more dovish comments from Yellen.
Yellen said the US economy appeared to be slowly moving toward full employment, but that it would need help from the central bank for some time to come, which fulfilled the dovish stance traders had anticipated. "The markets were anticipating continued dovish comments from Janet Yellen, and they were not disappointed," said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey.
Traders had expected that Yellen would not deviate significantly from the tone of the latest Fed policy meeting minutes released last week and comments she made on March 31 that the central bank's "extraordinary" commitment to boosting the economy would be needed for some time. Economic data, meanwhile, did little to support the dollar against the euro. US factory production increased 0.5 percent in March, according to data from the Fed on Wednesday, marking a sign of recovery from a long winter that had put a damper on activity.
The Commerce Department, however, said US housing starts increased 2.8 percent to a seasonally adjusted annual rate of 946,000, while economists polled by Reuters had expected starts to rise to a 973,000-unit rate last month. The data somewhat offset the positive manufacturing data. "The impact of the data was less significant," said Jalinoos of UBS. Traders said the impact of European Central Bank policymakers' hints on implementing further monetary easing continued to wear thin on Wednesday, which also helped the euro recover gain slightly against the dollar.
The dollar fell against the Russian ruble, meanwhile, for the first time in four trading sessions. Ukrainian forces launched a "special operation" on Tuesday against separatist militia in the Russian-speaking East, authorities said. "The Ukrainians have finally acted," said Trevisani of WorldWideMarkets. He said the ruble likely gained some ground against the dollar on Ukraine's attempt to forestall separatist actions in Ukraine.
The euro was last up 0.02 percent against the dollar at $1.3816. The US dollar index was last up 0.03 percent. The dollar was up 0.33 percent against the Japanese yen at 102.27. The dollar was also up 0.23 percent against the Swiss franc to trade at 0.882 francs. The dollar was last down 0.72 percent against the ruble to trade at 35.99 rubles.
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