(Reuters) - The yen and the euro both fell against the U.S. dollar on Tuesday for a fourth straight session, with the yen touching its lowest level against the dollar in 4-1/2 years, amid signs that the U.S. economy is improving.
The yen had been in a downward spiral even before breaching the key mark
of 100 yen against the dollar last week, partly as a result of aggressive
monetary policy action from the Bank of Japan, as well as expectations that the
U.S. Federal Reserve will taper its monthly bond buying sometime this year.
"The unprecedented amount of monetary easing in Japan is one factor, the
other in the next few months is a deteriorating current account," said Tatjana
Michel, director of currency analysis at Charles Schwab in San Francisco of
ongoing yen weakness. "Japan exports do better but imports become more
Michel's view is that the yen will weaken to between 110 and
115 to the dollar by year end and decline further to 120 to 130 in 2014.
The dollar climbed as high as 102.40 yen on Tuesday, the highest level
in 4-1/2 years, and last traded at 102.20 yen, up 0.4 percent on the day.
The euro last traded at 132.30 yen, up 0.2 percent on the day. The
session peak of 132.77 yen was a near 3-1/2-year high.
The extended yen
weakness came despite a spike in Japanese government bond yields, which tends to
reduce the relative attractiveness of foreign bonds for investors in Japan.
The Bank of Japan could further ease monetary policy as early as October
if prices do not rise as quickly as projected, according to economists polled by
Reuters, who have also upgraded their growth forecasts.
But the dollar
was underpinned by Monday's data showing U.S. retail sales rose unexpectedly in
April, and it may gain further if upcoming U.S. economic data also points to a
U.S. import prices fell in April due to a drop in oil costs, a
positive sign for household finances that also indicated benign inflation
U.S. data to be released this week includes industrial
production on Wednesday, housing starts and consumer prices on Thursday and
consumer sentiment on Friday.
EURO STEADY VERSUS DOLLAR
swung between gains and losses, with stronger-than-expected euro zone industrial
output data offsetting data on investor sentiment in Germany that pointed to a
tepid recovery in Europe's largest economy.
The euro got a slight boost
after Fitch Ratings agency upgraded Greece's sovereign credit rating to B-minus
from CCC, with a stable outlook.
But the euro remains weighed by the
risk that the European Central Bank could slash its deposit rate, paid on the
surplus funds that banks park with the ECB, to negative, essentially charging
depositors for leaving funds at the ECB.
"The euro seesawed after the
mixed data from the region largely offset (each other), keeping in place
sentiment that's largely bearish," said Joe Manimbo, senior market analyst at
Western Union Business Solutions in Washington, D.C.
the ECB might further cheapen borrowing rates to spur recovery at a time when
the days of the Fed's super-easy monetary policies appear increasingly numbered
have been among the chief catalysts driving the euro lower," he said.
The ECB clashed with Germany on Tuesday over how quickly the euro zone
should complete a system to deal with failing banks.
The euro was last
down 0.3 percent against the dollar at $1.2943 after touching a 5-1/2-week low
of $1.2930, according to Reuters data.
The Australian dollar fell for a
seventh consecutive trading day, according to Reuters data, and is enduring its
worst losing streak in at least 20 years, according to David Rodriguez,
quantitative strategist at DailyFX.
"Our proprietary retail FX
positioning data shows that retail crowds are the most long AUD/USD on record,"
Rodriguez said. "We most often use this as a contrarian indicator - if crowds
are long we want to be short. The severity of the move warns of corrections, but
we think overall direction is clear."
The Australian dollar was last at
US$0.9890, down 0.6 percent.