The yen strengthened from an almost nine-month low against the dollar as technical indicators showed the decline was overdone before elections on Dec. 16 where Japan’s opposition leader Shinzo Abe is projected to win.
The euro reached the highest in seven months versus the dollar as preset buy orders were triggered. The Japanese currency pared a weekly loss as Abe has called on the Bank of Japan to provide “unlimited easing” and set an inflation target of at least 2 percent. The dollar fell against higher-yielding counterparts after inflation was lower than expected, signaling the central bank’s stimulus isn’t inflationary.
“With the big event risk coming up over the weekend with the Japanese election, with a large portion of the speculative community seemingly long dollar-yen, this could be a bit of profit-taking ahead of that event,” said Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut.
The yen gained 0.2 percent to 83.52 per dollar at 5:02 p.m. in New York, after falling to the weakest level since March 21. It fell 0.5 percent to 109.90 per euro. The shared currency gained 0.7 percent to $1.3163, reaching the strongest level since May 4.
Futures traders added to bets the yen will fall against the dollar in the week ended Dec. 4, pushing net-shorts to 94,401, the most since 2007, according to Commodity Futures Trading Commission data.
Net-wagers the Australian dollar will rise against the greenback rose to a record 103,376 contracts last week, while speculators also pushed net-longs for the Mexican peso to an all-time high 149,271 contracts.
Losses for the yen may be limited against the dollar and the euro as technical indicators show the yen’s decline may have been too quick. The 14-day relative strength index against the euro fell to 25.7 and the gauge declined to 26.5 versus the dollar. A reading below 30 indicates an asset may be oversold.
The yen will trade at 85 versus the dollar at the end of 2013, according to the median of 57 estimates in a Bloomberg News survey.
Strategists have lowered projections for the yen against the euro for the first quarter of 2013 by 3.8 percent since October. That is the largest reduction behind an 8 percent reduction in forecasts for the South African rand versus the dollar, among currency pairs tracked by Bloomberg.
Sweden’s krona weakened against most of its 16 major counterparts after Finance Minister Anders Borg said unemployment was likely to keep increasing.
The krona depreciated 0.6 percent to 8.7885 per euro after sliding to the weakest since June 29.
The dollar weakened against major peers after consumer prices in the U.S. fell more than forecast last month, a sign the Federal Reserve’s bond-buying program hasn’t caused inflation.
The 0.3 percent decrease in the consumer-price index was the first drop since May and followed a 0.1 percent gain the prior month, the Labor Department reported today in Washington. The median estimate of 80 economists surveyed by Bloomberg called for a 0.2 percent drop. The core index, which excludes volatile food and energy costs, climbed less than projected.
“One would expect the knee-jerk reaction to be dollar-negative,” said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. “CPI underscores the Fed’s philosophy that quantitative easing is not inflationary therefore one could predict the Fed would do more.”
The Dollar Index, which tracks the greenback against the currencies of six major trading partners, declined 0.5 percent to 79.550.
The euro extended its gain versus the dollar after rising above the December high of $1.3127, triggering automatic orders, known as stops, at pre-determined prices, according to Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York.
The euro touched an eight-month high versus the yen after EU finance ministers meeting overnight in Brussels agreed to put the European Central Bank in charge of all euro-area lenders in a deal that paves the way for the currency bloc’s firewall fund to provide direct bailouts to banks.
“We’ve agreed on the key points to create a European bank supervision that’s supposed to start in 2014,” German Finance Minister Wolfgang Schaeuble said after the meeting. The agreement opens the way for negotiations to take place with the European Parliament.
The shared currency has gained 1.5 percent in the past month, the second best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after New Zealand’s dollar. The yen was the worst performer, tumbling 6.4 percent, and the U.S. dollar fell 2.1 percent.