Yen gains ground as dollar rally pauses on profit-taking

By Rae Wee

SINGAPORE (Reuters) -The yen got some much-needed respite on Tuesday as it steadied on the stronger side of 155 per dollar thanks to a pullback in the U.S. currency, which ran into profit-taking after a stellar rally that saw it scale a one-year high.

The yen last edged 0.12% higher to 154.47 per dollar, recovering from its fall in the previous session after Bank of Japan Governor Kazuo Ueda stuck to his usual script and failed to offer any hints on whether a rate hike could come in December.

"Recent (yen) weakness had many market participants expecting Ueda to sound hawkish, but in the end the Governor stuck to his recent narrative," said Rodrigo Catril, senior FX strategist at National Australia Bank (OTC:NABZY ).

"We think the economy and price pressures are making a strong case for a hike in December, but much will depend on whether there is any political push back, given the LDP is looking to regain public support, after a poor show at the recent Lower House election."

The yen has fallen some 7% since October and had weakened past the 156 per dollar level for the first time since July last week, leaving traders on alert for any intervention from Japanese authorities to shore up the currency.

Japanese Finance Minister Katsunobu Kato reiterated on Tuesday that the government would continue to respond appropriately to excessive foreign exchange movements.

In the broader market, the dollar was on the back foot as it eased further away from last week's one-year top against a basket of currencies.

Sterling steadied at $1.2670, while the dollar index tacked on 0.07% to 106.29, after falling 0.4% in the previous session.

"You do get bouts of profit taking after big moves like this," said Jarrod Kerr, chief economist at Kiwibank.

The greenback has risen more than 2% for the month thus far, buoyed by reduced expectations of the extent of Federal Reserve rate cuts and on the view that President-elect Donald Trump's touted policies of tariffs, reduced immigration and debt-funded tax cuts will be inflationary to the U.S. economy.

The euro similarly rebounded from last week's one-year low and last bought $1.0584.

Two top European Central Bank policymakers signalled on Monday they were more worried about the damage that expected new U.S. trade tariffs would do to economic growth in the euro zone than any impact on inflation.

Elsewhere, the Australian dollar clung to its gains from the previous session and last traded at $0.6504.

The Reserve Bank of Australia offered indirect support by reiterating that interest rates were unlikely to be cut soon, and might even have to be raised under some scenarios.

Markets have not fully priced a RBA cut until May next year, with a move in February after the fourth-quarter inflation report at just a 38% probability.



The Reserve Bank of New Zealand, meanwhile, meets next week and traders have priced in 50 basis points worth of easing from the central bank.

The kiwi last traded 0.12% lower at $0.5887, bouncing away from Monday's one-year low of $0.5837.

Source: Investing.com