By: Hillel Fuld
The USD declined to its most recent 15-year low against the JPY on Wednesday and the EUR struggled close to record lows against the Swiss franc as the market contemplated whether to sell it further on euro zone banking concerns.
The market is trying to determine how risk-averse it should be after a report reignited concerns about European sovereign debt and banks' exposure on Tuesday, sending stocks downward and lifting the low-yielding, safe-haven yen, franc and USD.
The move has also assisted the JPY against the USD, which fell to its lowest since 1995 as traders probed for options barriers at 83.50 and tested Japanese authorities' pain threshold for currency strength. The dollar dipped as far as 83.34 yen, down 0.5 percent on the day.
"The euro looks precarious again. The dollar will be weak ahead of the mid-term election. That leaves the yen as the only currency to buy especially after (Bank of Japan Governor) Shirakawa made only vague comments about the yen," a U.S. bank trader said.
BOJ Governor Masaaki Shirakawa restated on Wednesday his hesitation to return to quantitative easing steps but indicated the central bank was discussing its options on how to deal with economic impact from yen growth.
The EUR also fell 0.5 percent to 105.83 yen and was threatening to revisit August's nine-year low just below 105.50.
Yen strength has caused raised speculation whether Japan would intervene to dampen it.
Michael Hasenstab, Franklin Templeton's co-director of international bonds, said more quantitative easing steps by Japan were probable and could weaken the JPY, and this prompted Templeton to hold on to short yen positions versus the dollar and other Asian currencies.
"The only source of strength in the Japanese economy is exports. And with the yen sub 90 (per dollar), they will be under extreme pressure," Hasenstab told the Reuters' Dealing Room online chatroom.
The EUR was pinned at $1.2690, having fallen from $1.2870 on Tuesday and a three-week high of $1.2920 the day before. Traders are now looking for a test of support around $1.2625, though they are not exactly happy to go long on the U.S. currency either.
"It's the same old ugly contest -- which currency is the least unattractive," said a dealer at a local bank in Sydney.
The euro declined slightly on the day to 1.2820 francs, just above the previous day's record low of 1.2812 francs, and traders saw little chart support until 1.2700.