The dollar continued to weaken in storm-thinned trading conditions Tuesday while the Japanese yen held onto its overnight gains after the Bank of Japan failed to announce any radical new policies at its monthly meeting.
The effects of superstorm Sandy continued to wreak havoc in New York although there was minimal disruption to the functioning of the $4-trillion-a-day foreign-exchange market and settlement systems were working fine.
CLS Bank, the industry utility that ensures currency trades are settled, has also stayed immune from the fallout.
But trading volumes remained subdued during European hours.
"On a rough estimate, traders reckon our flow in [major currencies] is running at about two-thirds of average so far today," said Citigroup C -2.17% in London, adding that flows Monday were also lighter.
Citigroup—the world's second-biggest currencies dealer—said flows in the biggest traded currency pair, the euro against the dollar, have been running at around 40% of normal average daily volumes Tuesday.
The greenback remained under pressure against all major currencies.
"At the margin, the storm would be a negative for economic activity and that would provide another reason for the Federal Reserve to keep policy easy for longer. This would likely offset the buying of dollars as a safe haven. Traders seeking a safe haven are more likely to buy the yen," said Jane Foley, senior currency strategist at Rabobank in London.
This helped the Japanese yen remain close to its day's highs against the dollar, which it hit overnight after the Bank of Japan's additional easing measures—which saw it increase its asset-purchase program by ¥11 trillion ($137.83 billion)—did little to excite the market.
"Expectations continued to inflate heading into the announcement, with the unusually late conclusion of the meeting seemingly adding to a sense that something radical may be announced. In the end, however, the BoJ added ¥11 trillion to its asset-purchase target—roughly in line with expectations," said Adam Cole, chief currency strategist at RBC Capital Markets in London.
Amid broad-based dollar weakness, the euro was able to push above $1.2950 against the dollar.
Gains in European equity markets, an easing of Spanish and Italian bond yields, slightly better-than-expected Spanish gross domestic product data and decent demand at auction for Italian bonds all helped offset mixed euro-zone confidence data and poor German jobless figures.
The Hong Kong Monetary Authority had to step into the foreign-exchange market Tuesday selling 2.713 billion Hong Kong dollars ($350 million) to defend the Hong Kong dollar's peg to the greenback.
The euro was trading at $1.2955 against the dollar in the European morning, compared with $1.2904 late Monday in New York, according to trading system EBS. The dollar was at ¥79.47 against the yen, compared with ¥79.80, while the euro was at ¥102.96 from ¥102.97. Meanwhile, the pound was trading at $1.6070 against the dollar, compared with $1.6030 late Monday in New York.
The Wall Street Journal Dollar Index, which tracks the dollar against a basket of currencies, was trading at 70.185 compared with 70.193 late Monday in New York.
