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FOREX-Fed outlook continues to burnish dollar vs euro, yen
March 14, 2012 / 4:27 PM / 6 years ago

FOREX-Fed outlook continues to burnish dollar vs euro, yen

* Dollar strengthens broadly on seemingly less dovish Fed
    * Investors contrast Fed with BoJ


    NEW YORK, March 14 (Reuters) - The dollar reached an
11-month high against the yen and a one-month high against the
euro on Wednesday in a continued afterglow after the
Federal Reserve on Tuesday upgraded its economic outlook amid a
string of U.S. data indicating a sustainable recovery. 	
    A rise in the yield on U.S. two-year Treasury to around a
7-1/2-month high was making the dollar more
attractive as a buy-and-hold asset instead of as a currency to
fund investments in higher-yielding assets elsewhere. 	
    A 1.1 percent rise in U.S. retail sales in February reported
 on Tuesday added to signs of a pickup in the world's
largest economy and followed an encouraging monthly jobs report
last week, the third in a row.	
    Acknowledging the trend, 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. 	
    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
has gained around 9 percent against the yen since the beginning
of February.	
    The dollar's "bullish movement has re-accelerated following
the most recent FOMC and BoJ meetings, where the latter is
expected to continue to loosen monetary policy as the former
remains on hold for the time being," said Eric Theoret, currency
strategist at Scotia Capital in Toronto.  	
    The dollar rose as high as 83.76 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 8.8 percent against the yen in 2012 to
date, and analysts are raising their forecasts. 	
    The dollar was last at 83.73 yen, up 1.1 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.	
	
    EURO STRUGGLES	
    The euro struggled against the dollar, falling to a
one-month low of $1.3011 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 $1.3014, down 0.5 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.	
    Further boosting sentiment, the Fed on Tuesday said most of
the largest U.S. banks passed its stress tests, bolstering
strong gains on most stock exchanges. The Fed said that 15 of
the 19 banks it tested would have enough capital to protect
against losses, even if they suffered a financial shock that
would see unemployment hit 13 percent and housing prices drop 21
percent.  	
    Jens Nordvig, global head of FX strategy at Nomura, said the
European Central Bank'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 euro zone common currency strengthened against the Swiss
franc, however, 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 1.2126 francs. 	
    The Australian dollar also dropped against its U.S.
counterpart, touching a seven-week low of US$1.0427. It was last
at US$1.0433, down 1.1 percent.

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