LONDON—Both the dollar and the yen came under pressure Thursday on speculation that Japan and the U.S. might reveal plans for more monetary easing at the Jackson Hole central bankers' symposium this week.
The euro was the main beneficiary despite renewed fears of sovereign debt problems and an increase in the risk premiums associated with fiscally weaker members of the euro zone.
The euro rose to $1.2701 from $1.2650 late Wednesday in New York. The single currency was also up at 107.31 yen from 107.20 yen. The dollar was a slightly lower at 84.50 yen from 84.71 yen. The pound rose sharply to $1.5540 from $1.5450.
In the case of the U.S., a string of disappointing economic data this week, including the latest new home sales and durable goods orders Wednesday, have left markets speculating that the U.S. will edge closer to extending its quantitative easing.
This could well be signaled by Federal Reserve Chairman Ben Bernanke in his keynote speech in Jackson Hole, although it remains unclear whether Mr. Bernanke could command support for such a move because of a split among members of the central bank's open market committee.
"Fed Chairman Bernanke's Jackson Hole speech this Friday will therefore be critical," says Geoffrey Yu, a senior currency strategist with UBS AG in London.
The market is also speculating that Japanese officials will use the symposium to get endorsement for plans to ease Japanese monetary policy.
In recent weeks, as the dollar has fallen to 85 yen and below, the Japanese government appears to have been at a loss over how to stop the yen's advance.
Although market intervention remains a possibility, with the Bank of Japan selling the yen, the authorities appear to be leaning more towards further unconventional monetary easing as a way to both reduce deflationary pressures that remain in the economy and weaken the yen at the same time.
This possibly dovish policy shift in both the U.S. and Japan is hurting the dollar and the yen for now, with the euro managing to post gains despite a rise in the cost of credit default swaps for Greece, Ireland and other fiscally weaker debtors as risk of a sovereign default keeps investors wary of exposing themselves too much to the region.
