The dollar regained some of the ground lost to the euro overnight, while it gained a tad against the yen, with many investors reluctant to make major moves ahead of U.S. jobs data scheduled for release Friday.
The euro briefly hit Y140.37, its highest since Jan. 13, before weakening to Y140.22 around 0450 GMT, compared with Y140.02 in late New York trading. It was down to $1.1265 from $1.1275, after hitting a two-week high of $1.1285 overnight. The dollar was at Y124.48, compared with Y124.24, and well off its Wednesday mark of Y125.07, its highest since December 2002.
The overnight moves in the dollar were triggered by an upward revision in inflation forecasts and remarks by European Central Bank President Mario Draghi that markets should get used to volatility. That ignited a selloff in German bonds, pushing the euro higher.
Market participants said the rise in the common currency against the yen was largely down to position adjustments following the overnight gains.
“Short covering is set to persist over the short-term,” said Mizuho Securities FX strategist Kenji Yoshii. But he added that the euro is likely to weaken over the medium to longer-term given the smoldering Greek bailout issues and the ECB΄s massive asset purchase program.
Ahead of the closely monitored U.S. jobs report, many investors opted to stay on the sidelines rather than tilt their dollar positions in any particular direction. A strong jobs reading will provide the Federal Reserve with more ammunition to justify raising interest rates long before other central banks in Japan and the eurozone.
But the greenback remains well-supported, indicating that many players, including Japanese corporate investors, who were unable to buy the dollar in the latest rally, are still keen to buy the greenback on dips.
“For those who really want or need to buy, the dollar is maintaining its strength. So there has been buying kicking in from those who became impatient,” said Marito Ueda, director of FX Prime byGMO.
Mr. Ueda also said there has been a practice among overseas money managers under which they buy Japanese stocks and sell the yen for the purpose of hedging risk. The trade practice is aimed at offsetting the risk of reduction in their dollar-denominated value of Japanese stocks.
“There has been yen selling amid the dollar΄s strength,” said Mr. Ueda, adding that the dollar will continue to show itself less vulnerable to weakening against the yen.
The greenback also received a boost from buying caused by weakness in the Australian dollar following weak economic data in the morning.
Australia΄s trade deficit more than tripled in April as the value of resource exports fell sharply, while the nation΄s retail sales were unchanged in April from March, a worse result than the 0.3% increase economists were expecting.
Following the data, the Australian dollar fell to as low as $0.7709 and Y95.98, respectively from $0.7773 and $96.68.
The WSJ Dollar Index, a measure of the dollar against a basket of major currencies, was up 0.17% at 86.64.