Yen, dollar firm as carry trades unwound

By Anirban Nag

SYDNEY (BestGrowthStock) – The yen and the U.S. dollar were broadly firm on Wednesday as investors unwound risky trades on concerns that a global recovery could slow and as many turned cautious ahead of a U.S. Federal Reserve policy announcement.

The Fed’s Open Market Committee (FOMC) began a two-day meeting on Tuesday which is expected to yield little in terms of a policy shift. Yet, the meeting assumes significance as it takes place against the backdrop of a furious Senate debate over Chairman Ben Bernanke’s reconfirmation.

Bernanke’s current term expires on Sunday.

President Barack Obama is also scheduled to deliver his State of the Union address, while a number of key U.S. companies are due to unveil earnings for the fourth quarter later on Wednesday.

Last week, Obama’s announcement that he would seek to pass sweeping reforms to curb risky lending by banks spooked financial markets.

Adding to those uncertainties were China’s efforts to restrain bank lending and avoid the build up of asset bubbles while maintaining strong economic growth.

Traders said, speculators were using this nervous environment to pare long positions in higher-yielding currencies.

“We expect the FOMC to leave guidance that rates are likely to remain exceptionally low for an extended period unchanged,” JP Morgan said in a note. “Until then, markets will tread lightly, with risky markets likely biased lower until uncertainties are clarified.”

The dollar was a tad softer on the yen at 89.61 yen, having lost 0.65 percent on Tuesday. Support for the greenback is seen around the 89.30/40 yen level which is the 50 percent retracement of the November to January rally.

The dollar index (Read more about the global trade. ) (.DXY: ) was also higher at 78.489, sitting just above its 200-day moving average,

The euro was lower at $1.4070, easing from $1.4080 late in New York on Tuesday when it lost nearly 0.5 percent.

It lost more ground against the yen, dropping to 126.06 yen, from 126.22 yen late in Tuesday when it shed more than 1 percent.

The yen’s broad strength came despite Standard and Poor’s revising its outlook on Japanese sovereign debt to negative from stable [ID:nTKF106816].

Commodity currencies were also on the defensive, with the Australian dollar back below 90 U.S. cents.

It broke support around $0.8960/65, the 61.8 percent retracement of $0.8735 to $0.9331 move, keeping technical momentum to the downside for a re-test of $0.8938.

Australian consumer price index (CPI) data for the fourth quarter are due at 0030 GMT. Forecasts are for a modest 0.4 percent rise, with the annual rate seen picking up to 2.0 percent.

A high number would add to the case for a rise in interest rates at the Reserve Bank of Australia’s (RBA) policy meeting next week. It would likely take a very weak report to lessen the chance of a hike.

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(Editing by Wayne Cole)

Yen, dollar firm as carry trades unwound