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 Wall Street rallied and U.S. Treasury yields rose on Friday after
deep losses after a surprisingly strong U.S. consumer sentiment
reading and better-than-expected housing numbers that suggested
economic growth in the United States was solid.
The greenback got an extra boost against the yen on reports that
Japan's $1.2 trillion Government Pension Investment Fund (GPIF) will
significantly increase its allocation for stocks and boost its
foreign asset holdings, in turn spurring demand for foreign
currencies.
The dollar index, which measures the greenback against a basket of
six major currencies, rose 0.1 percent to 85.181 <.DXY> after
dropping to a three-week trough of 84.472 last week.
"There are a number of factors providing some support for risk at
the moment, but the big question is how long that lasts," said Ian
Stannard, head of European currency strategy at Morgan Stanley in
London, citing comments from several policymakers that have helped
push back rate hike expectations.
Boston Federal Reserve President Eric Rosengren told Reuters over
the weekend that the recent volatility in financial markets
reinforced the need for the Fed to be patient in raising interest
rates. And on Friday a top Bank of England policymaker said the bank
may keep rates lower for longer.
"We think that any rebound in the high-beta currencies is still
going to provide a good selling opportunity against the dollar,"
Stannard added.
High-beta currencies, such as the Australian and the New Zealand
dollars, are sensitive to perceived shifts in global demand. They
also fared better on Monday as pessimism over the world economy was
tempered and risk sentiment improved.
The Australian dollar climbed 0.2 percent to $0.8757, while its New
Zealand counterpart rose 0.3 percent to $0.7937.
YEN LOWER
The dollar rose 0.2 percent against the yen to 107.06 yen,
pulling further away from a five-week low of 105.195 hit last week.
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The greenback had hit a six-year high at the start of this month,
poking above 110 yen - a level at which nearly half of Japanese
firms think the government should start defending its currency,
according to a Reuters poll - but fell back as growth worries
prompted investors to put money into safe-haven assets.
"The dollar could extend its gains to the mid-107 yen level if
equity market sentiment in Asia and Europe improve," said Masafumi
Yamamoto, a market strategist for Praevidentia Strategy in Tokyo.
"The GPIF news is also rare as it touches on figures related to
foreign asset allocations and could be leading to further selling of
the yen."
Taking tips from Friday's rebound on Wall Street, Tokyo's Nikkei,
which hit a five-month trough on Friday, surged 3.5 percent.
In focus was whether the equity markets can retain their semblance
of calm in the face of coming data. Indicators including September
industrial output, retail sales and third quarter GDP will be
released in China on Tuesday.
Other data this week that could have a bearing on global risk
sentiment includes U.S. inflation on Wednesday and euro zone and
German PMI indexes on Thursday.
The euro was steady, despite data from the euro zone's biggest
economy, Germany, that showed producer prices declining for the 14th
consecutive month, highlighting the disinflationary pressures
concerning investors and policymakers alike.
The single currency was flat against the dollar at $1.2764.
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by
Andrew Heavens)
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