March 14, 2012 / 6:43 PM / 5 years ago

FOREX-Dollar gains vs euro, yen on Fed's economic outlook

* Dollar touches 11-month high vs yen; BOJ easing seen
    * Fed's upgraded outlook reduces expectations of more easing


    By Julie Haviv	
    NEW YORK, March 14 (Reuters) - The dollar hit an
11-month high against the yen and a one-month peak versus the
euro on Wednesday in a continued afterglow a day after the
Federal Reserve upgraded its economic outlook amid a stream of
U.S. data signaling a sustainable recovery.	
    Yields have been a primary driver of the dollar strength.  
A rise in the yield on U.S. two-year Treasury to around a
7-1/2-month high has made the dollar more attractive
as a buy-and-hold asset instead of as a currency to fund
investments in higher-yielding assets elsewhere.	
    Jens Nordvig, global head of FX strategy at Nomura
Securities in New York, said the European Central Banks's
long-term cash injections into European banks via cheap loans
has also changed the euro/dollar trading dynamics.	
    "In a way, the euro is the new dollar, with potential to
become the favorite funding currency in global capital markets,"
he said.	
    The improving outlook for the U.S. economy, driving
expectations that the Fed will be less likely to launch another
round of bond-buying, is in marked contrast to the euro zone and
Japan, where struggling economies make further easing by the
European Central Bank and the Bank of Japan measures more
likely.	
    The euro fell to a one-month low of $1.3008 after
triggering stop-loss orders below support at $1.3054, around the
50 percent retracement of a Jan. 16-Feb. 24 rally. It was last
at $1.3018, down 0.4 percent for the day.	
    Further support for the euro loomed at the next major trough
on daily charts at the Feb. 16 low of $1.2973.	
    	
    "We suspect that EUR/USD could continue to follow closely
the tightening German-U.S. bond yield spread," said Valentin
Marinov, currency strategist at CitiFX, a division of Citigroup,
in London. "Deep and protracted recession in the euro zone seems
likely to keep the ECB in an accommodative mode for now."	
    "At the same time, the nascent recovery in the U.S. seems to
have muted to a degree the Fed's urge to accommodate further."	
    The Fed's policy-setting Federal Open Market Committee on
Tuesday slightly upgraded its outlook, saying it expects
"moderate" growth over coming quarters and a gradual decline in
the unemployment rate, although it said the jobless rate
remained elevated. 	
    Further boosting dollar sentiment was the Fed's announcement
on Tuesday that most of the largest U.S. banks passed its stress
tests, a key measure of the health of the country's banks,
bolstering strong gains on most stock exchanges. 
 	
    	
    DOLLAR GAINS VERSUS YEN	
    The dollar was also boosted against the yen on recent
monetary easing steps by the Bank of Japan and Japan's record
trading deficit, powered by demand for fossil fuels. 	
    The dollar rose as high as 83.83 yen, its highest
since mid-April last year. Traders said Japanese exporters were
reluctant to sell the dollar and anticipated further strength.
The dollar has advanced nearly 9 percent against the yen in 2012
to date, and analysts are raising their forecasts. 	
    The dollar was last at 83.72 yen, up 1 percent. 	
    "We have revised our dollar/yen forecast up to 90 in six
months and think it will stay there until 12 months from now,"
said Raghav Subbarao, currency strategist at Barclays Capital in
London.	
    Barclays' previous forecasts were for dollar/yen to be at 82
yen in six months and 84 yen in a year.	
    Meanwhile, the euro zone common currency strengthened
against the Swiss franc, rising to a peak of 1.2146 francs
, its highest since Jan. 10, ahead of a Swiss National
Bank rate decision on Thursday. 	
    Although economists polled by Reuters expect the SNB to
stick to its euro/Swiss floor at 1.20 francs and keep interest
rates at zero, there have been calls for the bank to raise the
floor. The euro was last at 1.2114 francs, up 0.3 percent.

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