Dollar shifts higher in ‘calm before the storm’

The dollar was slightly higher against the yen and the euro in rangebound Asia trade Wednesday, as investors awaited key events later this week such as the U.S. jobs data.

The greenback USDJPY, +0.21% was at ¥123.09 compared with ¥122.87 late Tuesday in New York,

Although investors have already increased their bets that the U.S. Federal Reserve will start raising rates in the middle of this month, the pace of dollar purchases has slowed after downbeat U.S. manufacturing report hinted at gradual U.S. rate increases next year.
U.S. manufacturing contracted in November for the first time since the end of 2012, data from the Institute for Supply Management showed.

But the dollar’s losses have been limited as investors remain on the sidelines ahead of potentially market-moving events such as a European Central Bank policy meeting scheduled Thursday and the U.S. labor data Friday.

“We probably are seeing the calm before the storm,” said Yuzo Sakai, manager of foreign-exchange business promotion at Tokyo Forex & Ueda Harlow. “There is no need to test both upside and downside ahead of the event.”

The dollar is now hovering around a level investors consider “comfortable,” until they find their next trading cues, said Sakai.

For now, investors are awaiting a speech by Fed Chairwoman Janet Yellen later today.

Despite a falloff in U.S. Treasury yields after the soft ISM manufacturing report, “it’s hard to imagine Mrs. Yellen will turn pessimistic,” said Toshiyuki Umekawa, senior vice president of forex division at Mizuho Bank, adding that the dollar may gain again after investors adjust their current positions .

The U.S. currency was slightly stronger against the euro EURUSD, -0.2257% which declined to $1.0610 midday from $1.0632 late Tuesday. The common currency EURJPY, +0.00% was unchanged at ¥130.60.

In other currency trade pairs, the Australian dollar advanced after the nation’s resource-rich economy showed a strong expansion in the third quarter on the back of a surge in commodity exports.

The Australian dollar AUDUSD, -0.1502% touched $0.7343, its highest since Oct. 15, from $0.7331 late Tuesday, but then stabilized at $0.7310- midday on profit taking. The Aussie also rose to a fresh three-month high of ¥90.24 from ¥90.07 soon after the Australia’s GDP release in the morning, but then weakened to ¥89.97 midday.

The WSJ Dollar Index BUXX, +0.18% a measure of the dollar against a basket of major currencies, was up 0.18% at 90.61.

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