(Reuters) - The U.S. dollar fell against the euro and yen on Monday as traders pared back expectations Federal Reserve Chairman Ben Bernanke would hint at tapering bond purchases this week.
The yen rebounded from a 4-1/2-year
low against the dollar, with the Japanese currency drawing support from comments
by Economy Minister Akira Amari that the yen's excessive strength had largely
corrected and further weakness could damage Japan's economy.
shifting to Bernanke's testimony to Congress on Wednesday after recent comments
by Fed officials have fueled speculation the central bank may taper its bond
purchases sooner than expected.
"We may have been moving a little bit
too early," said Andrew Dilz, foreign currency trader at Tempus Inc. in
Washington. "I see a continuing of this exact pace of current purchases at least
through the end of the summer, which is going to put some pressure on the
The dollar index, which tracks its value against a basket of
currencies, fell 0.6 percent to 83.764, retracing from a near three-year peak
set on Friday.
Speculation had grown that the beginning of the end of
the Fed's massive bond-buying program - at $85 billion per month - might come
sooner than many investors think if recent gains in the U.S. labor market hold.
The roughly 50 percent jump in monthly job creation since the program
began has raised at least some chance the Fed could ratchet back its buying as
early as next month. The central bank next meets to debate policy on June 18-19.
The dollar fell 0.8 percent to 102.31 yen, having hit a low of 102.16,
according to Reuters data. Last Friday, the dollar reached a high of 103.30 yen.
The euro lost 0.6 percent to 131.84 yen and its low on Monday, at
131.02, was the lowest since May 9.
The BOJ, which begins a two-day
meeting on Tuesday, is expected to keep policy unchanged but could tinker with
its bond-buying plan to curb a recent rise in Japanese yields. Analysts said the
yen looked set to resume weakening as Tokyo was committed to easier monetary
"Any dip in dollar/yen toward 101 or 102 yen is a buy as
Japanese policymakers are clear that there will be more asset purchase or
quantitative easing in the longer term," said Alvin Tan, a currency strategist
at Societe Generale in London.
He said short-term momentum indicators
such as the 14-day relative strength index showed the dollar was overbought
against the yen, hence a pullback was due.
The euro rose 0.4 percent to
$1.2884 , having reached a session peak of $1.2894, rebounding from a six-week
low of $1.2795 touched on Friday.
But some analysts say additional gains
would be limited, given strong expectations the European Central Bank will cut
its deposit rate - the rate paid on surplus cash parked by banks - below zero in
JPMorgan lowered its second-quarter euro/dollar forecast
to $1.30 from $1.32 to reflect a shallower U.S. downturn, slower Chinese growth
and a protracted euro zone recession.
Any hint of the Fed winding down
its asset purchases could add the dollar's momentum, analysts said.
are dollar bulls and expecting more pieces of the puzzle to fall into place -
most notably serious speculation over the normalization of Fed policy, which can
drive U.S. money market rates and the dollar substantially higher," Chris
Turner, head of currency strategy at ING in London, wrote in a note.
dollar also weakened against other major currencies, with sterling up 0.6
percent on the day and the Australian dollar up 0.9 percent.