LONDON—The dollar came under pressure against the Japanese yen Monday as yields on U.S. Treasurys paused for breath after softer-than-expected data late Friday, providing an area of focus in an otherwise quiet market.
The dollar recently traded at ÂĄ83.12 compared to ÂĄ83.45 late Friday in New York, while the euro was at ÂĄ109.38 from ÂĄ109.96. The pound was at $1.5878 from $1.5858 and the euro was trading at $1.3164 compared to $1.3177.
The dollar has cranked some 10% higher against the yen since the start of February, buoyed by a growing belief in a U.S. economic recovery that has caused a selloff in U.S. government bonds—a key driver for this exchange rate.
But after Friday's softer-than-expected data from the U.S., including inflation data and consumer confidence readings, the rise in yields paused as investors adopted caution and reeled in expectations for interest-rate rises by the Federal Reserve. Early Monday, 10-year U.S. Treasurys yielded around 2.27%, compared with 2.363% early Friday.
"Market expectations for the first Fed rate hike are running one year ahead of the Fed's own expectations, which reinforces our view that the dollar will increasingly struggle to extend its recent advance absent a significant shift in Bank of Japan policy ahead," Bank of Tokyo Mitsubishi-UFJ said in a note to clients.
Likely adding to headwinds against the buck, the famously dovish New York Federal Reserve President William Dudley will make a speech about the economy at 0835 ET today, which could set the tone for the week ahead for the dollar in the absence of major U.S. data releases. Investors will be curious to see whether Dudley calls for a third round of quantitative easing—known as QE3.
"Due to a lack of data markets might rely on his comments, and pigs might fly rather than [Mr.] Dudley calling off QE3," Commerzbank said in a research note.
The euro was unable to hold on to the chunky gains it had made Friday and while the data calendar lacked first-tier drivers, poor Italian industrial orders did nothing to help the currency. Industrial orders dropped 7.4% in January compared with December, and 5.6% on an annual basis.
"The combination of very accommodative European Central Bank but only very gradual retreat in the sovereign debt risk going forward should continue to keep the headwinds for the single currency in place," Citigroup C +1.14% said in a research note.
There was no reaction in currencies markets as the initial stages of the long-awaited auction of Greek credit-default swaps suggested that holders of these contracts would receive 78.25 cents on the euro after the country's recent credit event—roughly in line with expectations.
Emerging markets currencies traded with a mixed tone and followed the euro in range-bound trading.
