Dollar takes breather, pound steadies

The dollar eased slightly against the yen on Wednesday.

Tokyo - The dollar eased slightly against the yen on Wednesday, but remained close to 2-1/2-week highs reached this week as the prospects for more economic stimulus in Japan helped bolster risk sentiment.

The dollar was off 0.2 percent to 104.46 yen. On Tuesday, the greenback touched 104.98 yen, its highest level since June 24. For the week, the dollar is up about 3.8 percent against the yen.

The euro fell 0.3 percent against the yen to 115.46 yen but was still up about 3.9 percent so far this week. Against the dollar, the euro held steady at $1.1057.

A rebound in equity markets has led investors to reduce their holdings of safe-haven assets like the yen, which had surged in the aftermath of Britain's shock vote last month to leave the European Union.

Some market participants caution against reading too much into this week's moves.

While the yen may ease further in the near term, a sustained drop against the dollar seems unlikely, said Daisuke Karakama, chief market economist at Mizuho Bank.

“I think these moves are nothing more than position squaring and will prove temporary,” Karakama said, referring to the yen's broad retreat this week.

Expectations of more economic stimulus in Japan have contributed to the recovery in risk sentiment.

Japanese Prime Minister Shinzo Abe on Tuesday told his economy minister to compile an economic stimulus package by the end of this month to revive a flagging economy.

Besides fiscal spending, there is also focus on whether the Bank of Japan will expand its monetary stimulus at its policy meeting later this month, especially after former US Federal Reserve Chairman Ben Bernanke told Abe that the BOJ has steps left available to support the economy.

Sterling eased 0.1 percent to $1.3233, after climbing 1.9 percent on Tuesday.

The battered sterling has enjoyed some relief this week as the anointing of interior minister Theresa May as British prime minister helped calm investors unnerved by Brexit and political turmoil.

For sterling, this week's main economic event is a Bank of England policy meeting on Thursday which markets expect will bring about a cut in interest rates to shield the economy from the immediate shock of the Brexit vote.

REUTERS