TOKYO - The dollar weakened in Asia Tuesday with markets eyeing a US Federal Reserve meeting later in the week, while the euro firmed as risk sentiment rose on upbeat China data.
The dollar was quoted at 78.20 yen in Tokyo afternoon trade from 78.27 yen in New York late Monday. The euro bought $1.2772 from $1.2758 while it was at 99.90 yen from 99.86 yen in US trade.
Dollar-yen trading would likely stay within a narrow range as markets speculate about whether the US central bank meeting on Wednesday and Thursday will see a third round of bond buying, or quantitative easing, to power the world’s largest economy, dealers said.
“Opinion is mixed toward whether the Fed would initiate QE3 (a third round of quantitative easing), and the market is having a hard time factoring in a possible outcome,” said Kengo Suzuki, forex analyst at Mizuho Securities in Tokyo. There was also caution ahead of a German court ruling on the eurozone’s bailout fund, but the euro won a measure of support on upbeat Chinese data that showed bank lending in August grew to 703.9 billion yuan ($112 billion), up from 540.1 billion yuan in July.
The data from the People’s Bank of China surpassed market expectations of 600 billion yuan in new loans, according to a forecast of 13 economists surveyed by Dow Jones Newswires.
Last week, the euro jumped above 100 yen for the first time in two months after the European Central Bank said it would buy bonds from troubled eurozone nations in a bid to bring down their borrowing costs and prop up the currency. But euro sentiment had dampened since, owing to broader worries about the bloc sinking into recession, while traders looked to Wednesday’s German court ruling on the European Stability Mechanism bailout fund (ESM), dealers said. The court, which is due to rule on the constitutional legality of Berlin taking part in a rescue fund set up to support under-pressure countries, was not expected to block the ESM.
Also Wednesday, the Netherlands holds parliamentary elections for the second time in two years after a tight race dominated by economic uncertainty thanks to Europe’s long-running debt crisis.