U.S. Dollar Firm As Yen Bounces Back

The U.S. dollar held steady Monday against most major currencies and the yen rebounded from a two-year low as the Bank of Japan began a two-day policy meeting.

The euro moved in a range against the greenback after an electoral loss for the Germany’s ruling coalition party in Lower Saxony state. U.S. markets were closed on Monday for Martin Luther King Jr. holiday, which was expected to keep a lid on the action for foreign exchange.

The ICE dollar index , which measures the greenback against a basket of six major global currencies, was a touch lower at 80.046 from 80.050 late in North America on Friday.

Against the Japanese unit, the dollar  dropped back below the 90-yen handle, and was trading at ¥89.71 from ¥90.09 on Friday. The euro  was at ¥119.56 from ¥120.01.

A two-day meeting of the Bank of Japan’s rate-setting board began Monday, with the board widely expected to formally adopt a higher inflation target of 2% at the meet. The yen’s bounce on Monday follows heavy losses recently on expectations the BOJ would further ease its accommodative policy stance to boost the economy.

“We would caution against chasing [dollar-yen] and yen-based crosses at current levels, as a lot is priced in and there is a real risk that the market sells the pair on the fact after tomorrow’s BOJ central bank meeting,” said Stan Shamu, a market strategist at IG Markets.

The euro  was at $1.3312 from $1.3317, after Germany’s center-right coalition parties narrowly lost an election in the state of Lower Saxony. The defeat came ahead of general elections expected in September.

Adam Myers, a currency strategist at Credit Agricole, said that in addition to the German state election results, uncertainty related to Cyprus’s debt issues may also hinder further gains for the euro.

“Cypriot negotiations with the Troika this week regarding their requested 17.5 billion euro loan are unlikely to produce agreement. Combined with continued macroeconomic uncertainty in Europe, such factors could help moderate (but not fully contain) a euro move higher,” he said.

The troika includes the International Monetary Fund and the European Central Bank, which have been organizing, and negotiating the terms of, loans to debt-strapped nations in the euro-zone.

Marketwatch

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