LONDON - The dollar dipped on Monday and looked set to test a 15-year low against the yen after shedding gains made after U.S. jobs data, while better risk appetite kept the euro near a three-week high versus the U.S. currency.
Less-dire-than-expected U.S. payrolls data last week eased market anxiety over chances of a global slowdown and boosted demand for growth-linked currencies like the Australian dollar.
"We are seeing some relief from fears about a double-dip recession in the U.S. helping risk sentiment and the euro," said Gareth Berry, currency strategist at UBS. "But whether this sentiment can be sustained or not is difficult to say."
U.S. non-farm payrolls fell 54,000, a much smaller drop than the predicted 100,000. Private employment, considered a better gauge of labour market health, increased 67,000.
Rising risk appetite has tended to help the euro and higher- yielding currencies in recent months, as investors increasingly see the dollar as a funding currency for investments on expectations of a prolonged period of near zero U.S. rates.
The euro was at flat for the day at $1.2890, having earlier risen to $1.2918, its highest since Aug. 12. Resistance is seen around $1.2932, the Aug. 12 high.
Market participants said they believed Asian central banks, excluding Japan, are converting dollars into euros after they intervene to rein in gains in their own currencies against the greenback, further boosting the euro.
The dollar index was down 0.1 percent at 82.02 with support at 81.82 -- the 50 percent Fibonacci retracement of the index's rise from 80.085 to a high of 83.559, in August.
Yen long positions trimmed
The dollar also ceded ground against the yen, dropping 0.25 percent to 84.07 yen, not far from last month's 15-year low of 83.58. It had risen to 85.23 after the jobs data, but quickly erased the gains.
Dollar/yen has been very highly correlated with U.S. bond yields in recent months. The lower U.S. yields are, the cheaper the dollar is against the yen, as lower yields tend to discourage investment in the dollar from Japan.
In the past month, the yield on the benchmark 10-year U.S. Treasury note has shed 12 basis points, while the dollar/yen has fallen over 1.5 percent during the same period.
Investors have also bought yen in the past few months as they tend to favor currencies of countries with a current account surplus when they want to avoid risk. The rise had caused headaches for Japanese policymakers battling deflation at home and counting on exports to jump-start the economy.
Speculators trimmed their long positions on the yen last week but still have big yen long positions, data from the U.S. Commodity Futures Trading Commission showed on Friday. Net long positions were cut to 49,904 from 51,069 contracts.
Berry at UBS said hedge funds were selling dollar/yen while other asset managers were emerging as bit buyers. He added hedge funds believed U.S. data would remain soft, putting downward pressure on U.S. yields and dollar/yen.
On Saturday, Japanese Finance Minister Yoshihiko Noda said Tokyo would take decisive steps to stem the yen's rise when needed while suggesting coordinated currency intervention in the market was a difficult option.
"For intervention to work, it has to be coordinated and it does not look that the U.S. is prepared for that," said Bilal Hafeez, foreign exchange strategist at Deutsche Bank.
"So going solo by the Japanese authorities could work for a day, but unlikely beyond that. We are looking for the dollar/yen to fall to 80 yen in the medium term."
