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FOREX-Dollar falls from 6-year high vs yen as U.S. yields slide
October 1, 2014 / 1:57 PM / 3 years ago

FOREX-Dollar falls from 6-year high vs yen as U.S. yields slide

* Dollar/yen pokes above 110 threshold, first since 2008

* Investors position for good U.S. data

* Markets take profits on dollar longs (Recasts, updates prices, adds comment, U.S. data, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 1 (Reuters) - The dollar pulled back from six-year highs against the yen to trade little changed on Wednesday, weighed down by a drop in U.S. Treasury debt yields amid weakness in global stocks.

Investors also booked profits on long U.S. dollar positions ahead of key event risks - the European Central Bank's monetary policy meeting on Thursday and Friday's U.S. non-farm payrolls report.

Still, the dollar is expected to sustain its strength for the rest of the year as investors bet that robust U.S. economic data will lead the Federal Reserve to tighten monetary policy.

A private sector employment report showing the U.S. economy added more than 200,000 jobs last month reinforced bullish bets on the dollar.

"The dollar is pulling back a little bit, as yields fell, with the FX market at least consistent with the rates market," said Vassili Serebriakov, currency strategist, at BNP Paribas in New York.

"Obviously, there has been some profit-taking on long dollar positions. Beyond that, I don't think anybody has changed their mind on the bullish dollar trend.

In mid-morning New York trading, the dollar was down 0.1 percent at 109.48 yen, having risen past 110 yen during Asian trade.

The market barely reacted to a comment by a Japanese government spokesman who said the weak yen needed to be monitored, but traders remained on guard in case authorities' warnings becomes louder.

The euro, meanwhile, was down 0.2 percent at $1.2606, holding near two-year lows hit on Tuesday. Europe's common currency was hit by fresh evidence of a slowdown in euro zone inflation.

Data showed euro zone annual inflation cooled to 0.3 percent in September from 0.4 percent, intensifying the case for the ECB to offer more stimulus, including quantitative easing.

That stoked the view that monetary policies in Europe and the United States are on diverging paths. While the Fed is expected to tighten at some point, there is a growing view that the European Central Bank will need to implement a full-blown policy of government bond-buying to fend off the threat of deflation.

The dollar index was up 0.1 percent at 86.019. The index has gained 7.5 percent so far this year, and is on track for its best yearly gain in nine years. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Anirban Nag in London; Editing by Meredith Mazzilli)

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