TOKYO (AFX-ASIA) - The dollar turned top-heavy against the yen in midafternoon trading due to underlying concerns over the outlook for the US economy, dealers said. The US unit reached a high of 122.50 yen earlier, after the Nikkei 225 index hit a new year-to-date low, but lost momentum due to a lack of follow-through buying.
Toyo Trust and Banking Co Ltd customer dealer Issaku Taguchi said the US currency is most likely to be exposed to downside risk for some time to come, with the market seen continuing to adjust long positions built on optimism over the US economy.
"As the recent Beige Book indicated, investors now feel the strong risk that the US economy will not achieve any quick recovery, especially in a way that they had hoped for previously," he said. "Therefore, the market will remain highly sensitive to any negative leads for the dollar."
However, the dollar is most likely to trade in a limited range for the remainder of this week due to the Japanese "Obon" summer holiday season, which set in today, dealers said.
"My main scenario is that the dollar will be held to the 121-123 yen trading range this week, but if it were to show any move away from this range, it should dive towards the 120 yen level."
Some investors also refrained from taking fresh positions ahead of the announcement tomorrow of near-term policy management by the Bank of Japan, although the consensus view is that the nine policy members will vote to maintain the present policy directive, dealers said. The euro was little changed due to a lack of fresh leads, with the market waiting for next ECB and FOMC meeting later in this month, dealers said.
Toyo's Taguchi said that although relatively heavy sell orders continued to weigh on the top-side of the euro above the 0.8950 usd level, the unit is likely to reclaim the 0.90 usd level.
"But the euro is not likely to see any acceleration in its rising momentum above the 0.90 usd level," he said.