The dollar hit multi-month highs against major currencies on Wednesday, maintaining its recent bull run on growing optimism about a pick-up in the long dormant U.S. jobs market. While expectations for a strong reading in U.S. payroll data due on Friday boosted the greenback, traders also said much of the buying was technically driven short-covering, after the euro fell below key resistance levels versus the dollar on Tuesday. The dollar has now reclaimed more than six percent from last month's record lows against the euro and five percent from 3-Ѕ year troughs versus the yen, leading some analysts to declare that its two-year downtrend may be over. "I think the picture clearly changed yesterday," said Kikuko Takeda, market economist at Bank of Tokyo-Mitsubishi. "It's becoming clearer that the dollar has bottomed out."
The euro fell about 0.3 percent to $1.2180 , extending Tuesday's huge loss of 2.35 cents -- its biggest single-day loss in absolute terms since the launch of the single currency five years ago. The euro briefly fell as low as a three-month trough of $1.2147. "The fact that the euro fell below resitance around $1.2350 had a huge impact, as some people had thought it would rebound there as it had done a few times before," said Satoshi Tokuda, forex manager at Sumitomo Corp. Traders said the euro was unlikely to get help if the European Central Bank refrains from cutting rates at its policy meeting on Thursday. By 0646 GMT, the dollar was at 110.15 yen , up slightly on the day and within shouting distance of Tuesday's four-month highs around 110.40 yen. The British pound lost more than 0.5 percent to hit a one-month low around $1.8290 . The Australian dollar tumbled nearly two percent at one stage to hit two-month low of $0.7485 . The U.S. dollar rose above 1.30 Swiss francs for the first time in three months. A jump in the employment component of Monday's Institute of U.S. Supply Management report bolstered expectations of a strong reading in Friday's non-farm payrolls.
NO MORE INTERVENTION?
Traders were scrambling to buy back dollars they had sold during the currency's two-year bear market on the widening U.S current account deficit. But some analysts said the deficit could shrink or at least stop growing soon. "It's said it takes about two years for a change in the exchange rate to have an impact on the current account balance. If so, the dollar no longer needs to fall," said Takeda of Tokyo-Mitsubishi. As for the yen, Japan's heavy yen-selling since last year may have finally borne fruit, some analysts said. "With Japan having sold 10 trillion yen so far this year, the demand-supply balance of the market seems to have changed," said Takeda. Japan stepped up yen-selling intervention this year, after it sold a record 20 trillion yen ($182 billion) last year, in an effort to prevent the currency from rising rapidly and damaging the nation's export-led recovery. Market sentiment has changed so much that the dollar showed little reaction to Federal Reserve Chairman Alan Greenspan's rare straight-forward comments on Japan's intervention late on Tuesday. "The current performance of the Japanese economy suggests that we are getting closer to the point where continued intervention at the present scale will no longer meet the monetary policy needs of Japan," Greenspan told the Economic Club of New York. The Fed chief also said it seemed likely that Tokyo's rate of accumulation of dollar assets "will have to slow at some point and eventually cease" once the current situation of declining prices, or deflation, is past. Greenspan also said that U.S. interest rates must rise eventually. "The Federal Funds rate is accommodative and at some point it will have to rise back to a more neutral state, because it is inconsistent with general long-term stability," he said.//