March 14, 2012 / 11:43 AM / 6 years ago

FOREX-Buoyant dollar hits 11-mth high vs yen, firm vs euro

* Dollar strengthens broadly after Fed perceived less dovish
    * Euro underperforms dollar, support seen around $1.2974
    * Euro rises versus Swiss franc ahead of SNB rate decision

    By Nia Williams	
    LONDON, March 14 (Reuters) - The dollar hit an
11-month high against the yen and one-month high versus the euro
on Wednesday and more gains were expected after an upgraded
Federal Reserve economic outlook and firmer U.S. data dented the
greenback's appeal as a funding currency.	
    U.S. two-year Treasury yields reached a 7-1/2-month high
after solid retail sales data on Tuesday, making the dollar less
attractive to fund investments in higher-yielding assets.	
    These factors pushed the dollar to a peak of 83.56 yen
 in European trade, its highest since mid-April. Traders
said Japanese exporters were reluctant to sell the dollar and
anticipated further strength. Last year's high of 85.53 yen was
seen as important resistance.  	
    The euro struggled against the dollar, falling to a
one-month low of $1.30308 on trading platform EBS as it
triggered stop losses below support at $1.3054, the 50 percent
retracement of a Jan. 16-Feb. 24 rally. It later recovered to
$1.3066, down 0.1 percent for the day.	
    Further support for the euro loomed at the next major trough
on daily charts at the Feb. 16 low of $1.2974.	
    "The dollar is profiting compared to the euro and the yen
for the moment as the Fed has been a little less dovish," said
David Bloom, head of FX research at HSBC. "I can understand why
the dollar has momentum as the economy looks a bit better. The
question is whether the market is over-reacting."	
    A strong 1.1 percent rise in U.S. retail sales added to
signs of a pick-up in the world's largest economy after an
encouraging jobs report last week.	
    Acknowledging this trend, the Fed slightly upgraded its
outlook, expecting "moderate" growth over coming quarters and a
gradual decline in the unemployment rate, although it said the
jobless rate remained elevated. 	
    Recent monetary easing steps by the Bank of Japan and the
country's record trading deficit powered by demand for fossil
fuels have also helped the dollar, which has slightly more than
9 percent against the yen since the beginning of February.	
    "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.	
    Barclays' previous forecasts were for dollar/yen to be at 82
yen in six months and 84 yen in a year.	
    The dollar index, which measures its value against a basket
of six major currencies, hit its highest in nearly eight weeks
at 80.435.  	
    Further boosting sentiment, the Fed said most of the largest
U.S. banks passed its stress tests, bolstering strong gains on
most stock exchanges.  	
    The traditional inverse relationship between the dollar and
equities looked to have broken down and some analysts said this
could persist, in part due to the low starting point of
expectations in early 2012 for U.S. growth and forward rates. 	
    Jens Nordvig, global head of FX strategy at Nomura, said the
European Central Bank's long-term cash injections into European
banks (LTRO) had also changed euro/dollar's trading dynamics.	
    "In a way, the euro is the new dollar, with potential to
become the favourite funding currency in global capital
markets," he said.	
    The single currency strengthened against the Swiss franc,
however, rising to a one-month high of 1.2117 francs 
before 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 Australian dollar also dropped against its U.S.
counterpart, hitting a seven-week low of US$1.0465.

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