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FOREX-U.S. dollar jumps to 6-week high vs yen

Published 12/21/2009, 03:58 PM
Updated 12/21/2009, 04:00 PM

* Year-end flows, Fed expectations lift greenback

* Fiscal worries about Greece weigh on euro

* Euro recovers from earlier 9-month low vs Swiss franc

* SNB intervention jitters remain (Updates prices)

By Steven C. Johnson

NEW YORK, Dec 21 (Reuters) - The dollar hit a six-week high against the yen on Monday as traders bought back the greenback after selling it heavily for most of the year and braced for U.S. economic growth to pick up steam in 2010.

The euro dipped below $1.43, near a 3-1/2-month low, as lingering concerns about Greece's fiscal health weighed on the currency and the outlook for the 16-country euro zone economy.

Trading volume was light, which contributed to the size of some moves, but recent strong U.S. jobs and consumer data have boosted expectations that the Federal Reserve may hike interest rates next year before its counterparts in Japan and Europe.

The Bank of Japan last week said it would not tolerate zero inflation or falling prices, suggesting interest rates are set to stay low for some time yet.

"There's a belief that the U.S. economy is recovering at ... a much more rapid pace than many people had previously thought," said Greg Salvaggio, senior vice president of capital markets at Tempus Consulting in Washington. "As a result, traders are a little bit anxious about the possibility of a shift in the Fed's interest rate policy next year."

The dollar rose 0.9 percent to 91.16 yen, near its highest level since early November, while the euro rose 0.5 percent to 130.23 yen. The euro was down 0.4 percent at $1.4282, near Friday's low of $1.4262 set on electronic trading platform EBS, its weakest since Sept. 4.

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The Fed reiterated earlier this month that interest rates will remain low for "an extended period." Charles Evans, president of the Chicago Federal Reserve Bank, said on Monday that to him "extended period" means about three to four meetings of the U.S. central bank's policy-setting panel.

In an interview with business television channel CNBC, Evans also said low inflation will give the central bank room to keep monetary policy easy for an extended period.

Most U.S. primary government securities dealers expect the Fed to hike rates by the end of the first quarter of 2011, with only the most optimistic seeing an increase during the second quarter of 2010, according to a Reuters poll.

SWISS FRANC FADES

The euro recovered most losses against the Swiss franc after tumbling to a nine-month low overnight when traders took advantage of thin liquidity to push the common currency quickly through stops below 1.49 Swiss francs. It was last down 0.1 percent at 1.4937 francs.

The franc earlier fell sharply against the dollar and euro, and traders said a large order by a commercial bank triggered unconfirmed talk of Swiss National Bank intervention.

Investors have been testing the resolve of the Swiss National Bank after it subtly altered its intervention stance earlier this month, saying it would act only to counter an "excessive" appreciation of the franc versus the euro.

The SNB and Bank for International Settlements, which has acted for the SNB in the past, declined comment.

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Against the dollar, the euro traded above $1.50 coming into December but has since been pressured by concerns about the fiscal health of some countries on the euro zone periphery following recent rating agency downgrades on Greek debt.

There is no risk of a euro-zone country defaulting on its debt, European Central Bank Governing Council member Athanasios Orphanides was quoted on Monday as saying. (Additional reporting by Wanfeng Zhou; Editing by Leslie Adler)

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