The dollar rebounded against the yen Tuesday after the Bank of Japan left its interest rates unchanged, but lost some ground to a resurgent euro.
The dollar rose to 110.90 yen, up from 109.41 yen on Monday in the wake of the BoJ announcement. The dollar had fallen below a psychologically important 110 yen on Monday for the first time since May 2006.
Japan's central bank left its super-low interest rates unchanged again following recent heavy losses on global stock markets and a spike in the value of the yen.
The Bank of Japan decided in an 8-1 vote to leave its benchmark rate at 0.5 percent, where it has been since February, it said in a statement.
The euro meanwhile strengthened to 1.4600 dollars against 1.4529 dollars late on Monday. Last week the European single currency struck a historic high of 1.4752 dollars.
Traders said they were eagerly awaiting a US government report on October retail sales due to be released Wednesday. Retail sales are expected to moderate from a rise of 0.6 percent in September, which could raise the odds of a potential US interest rate cut next month.
The Federal Reserve cut US rates in October and September in a bid to underpin economic momentum.
Fed chairman Ben Bernanke has warned that economic growth will likely slow in coming months as the economy continues to be buffeted by a persistent housing downturn and tighter credit.
"Traders appear to be trying to force the bank's hand as federal funds futures currently price in a 98 percent chance of a 25 basis point rate cut in December," said Terri Belkas, a currency analyst at Forex Capital Markets.
"These markets could get an unwanted surprise if futures continue to price in such policy action but the FOMC actually leaves rate steady," Belkas cautioned.
The Fed cut its short term interest rate by a quarter of a percentage point to 4.50 percent last month following a deeper cut of half a percentage point the prior month.
The British pound was firm, recovering from sharp falls on Monday, as a report showed British headline annual inflation rose above expectations to 2.1 percent in October from 1.8 percent in September.
This takes the rate above the Bank of England's 2.0 percent target level for the first time since June and dents any lingering belief that the Bank of England will cut interest rates in December, according to analysts.
"The UK inflation data was pretty bad and dispels any idea that the Bank of England might cut rates," said Mic Mills, a trader at TradIndex.com.
Analysts said the markets had appeared to shrug off a weak German ZEW economic sentiment survey which showed the index slumping to a 15-year low of -32.5 in November from -18.1 in October.
In late US trade, the dollar stood at 1.1273 Swiss francs from 1.1288 late Monday while the pound rose to 2.0706 dollars after 2.0530.
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AFP
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