The euro held steady against the dollar on Wednesday, supported by persistent hopes for further action by the European Central Bank to lower the borrowing costs of Spain and Italy. The yen inched higher, after having sagged the previous day as investors continued to favour riskier assets on hopes for ECB action to contain the euro zone's debt crisis.
The euro held steady from late US trade on Tuesday at $1.2394, not too far from a one-month high of $1.2444 hit on Monday on trading platform EBS. The dollar slipped 0.1 percent versus the yen to 78.52 yen, but hovered near the top of a range between 78.80-77.90 that has largely held for the past two weeks.
One factor supporting the dollar against the yen was a rise in US Treasury yields. Both two-year and 10-year US yields have hit one-month highs this week against a backdrop of improving investor appetite for risk. "Two-year yields have jumped in recent days. I think as long as US yields move higher then of course dollar/yen will be under upward pressure," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
The potential for fund repatriation by Japanese institutional investors is another factor that may weigh on the dollar against the yen in the near term, traders say. August is a month that typically sees a large amount of bond redemptions in US Treasuries as well as coupon payments, and traders say Japanese investors holding Treasuries could potentially sell the dollar against the yen to bring home some of the proceeds.
The Australian dollar dipped 0.1 percent to $1.0544, having hit a four-month high of $1.0604 on Tuesday. Against the yen, the Aussie dollar eased 0.2 percent to 82.76 yen, but still remained near a three-month high around 83.22 yen hit on Tuesday. Investors tend to buy the yen and US dollar in times of heightened market stress, but sell them for higher-yielding currencies when there is appetite for risk.