TOKYO, May 20 (Reuters) – The yen rose against the dollar on Wednesday and took back the previous day’s losses against the euro and higher yielders such as the Australian dollar after their rallies ran out of steam for now.
The dollar also inched up against the euro after losing ground on Tuesday, with caution setting in as to how far to push bets against the yen and greenback which have been driving those currencies gradually lower across the board since February.
Currencies such as the Australian dollar and sterling have gained as investors have grown more optimistic that the global economy is past the worst and both hit multi-month highs against the greenback on Tuesday.
Analysts and traders said, however, a weak reading on U.S. housing data and a mixed day on Wall Street had given pause for thought, leading to some profit-taking on currencies perceived as riskier than both the dollar and the yen. S&P futures SPc1 fell on Wednesday, signalling a soft start to U.S. stocks later.
“The current poor state of the global economy and expectations for an economic recovery are playing tug-of-war, with few seeing clear direction in the market,” said Mitsuru Sahara, chief manager of FX derivatives trading at Bank of Tokyo-Mitsubishi UFJ.
Short-term trades dominated, with the dollar fluctuating against the yen as demand ahead of the Tokyo fixing at 0100 GMT pushed it up, only to be met by selling from Japanese exporters.
The dollar fell 0.4 percent to 95.57 yen <JPY=>, slipping towards a two-month low of 94.55 set earlier in the week.
But the dollar’s index against a basket of currencies gained 0.2 percent .DXY, rising away from a four-month low set last week, which it veered back towards on Tuesday.
The market is divided about how to trade dollar/yen at the moment, with both the U.S. and Japanese central banks holding interest rates close to zero to help economic recovery.
Both currencies are losing ground now investor risk appetite is on the mend and money is gradually being put to work in other assets. They have been stuck in a broad 95-100 range.
The dollar has failed to revisit this year’s peak of 101.45 yen and has broken back down through some significant chart levels, leaving some betting it could go even lower.
