The dollar touched an 11-month high against the yen and a one-month high against the euro today, as a US retail sales report left investors anticipating a recovering US economy will keep the Federal Reserve from announcing fresh stimulus measures.
The dollar recouped the knee-jerk losses against the yen that occurred after the Bank of Japan stopped short of taking aggressive easing steps. Some investors had been betting on a repeat of the central bank's surprise easing last month.
The greenback has been supported by signs of improvement in the world's biggest economy for the last few months. Data last Friday showed February was the third straight month to record a gain of more than 200,000 jobs.
A report on today showed US retail sales recorded their largest gain in five months in February.
"The US economy is providing more and more indicators that growth is moving ahead," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto, noting the retail data was "fairly strong across the board."
The euro was last down 0.7 per cent at $1.3058 after going as low as $1.3050, it's lowest since February 16th. Against the yen, the dollar was last up 0.6 per cent at 82.75 after touching a fresh near 11-month peak of 82.85 yen, it's highest since April 20.
The euro is still being pressured by fears the European debt crisis will not be resolved despite Greece's success in securing a debt-cutting swap deal. The currency's outlook remains shaky given that the euro zone economy is slipping into recession, in contrast with a brightening picture in the United States.
While the euro is supported by relief after Greece successfully swapped most of its privately-held bonds and cut its debt by more than €100 billion, many market players are concerned that other peripheral countries like Portugal may suffer a similar fate.
Westpac strategists said they have entered a short euro/dollar trade. They have sold euros at $1.3180 and would look to sell more into a rally to $1.3350.
"Speculators were positioning for more aggressive easing from the BOJ and so far those expectations have been disappointed," said Lee Hardman, currency strategist at BTM-UFJ in London.
"We expect the dollar to outperform generally but against the yen it looks to have come too far in the short-term."
Dealers said a widening in the spread between two-year US government bond yields and their Japanese equivalents was helping to support dollar/yen.
The dollar peak against the yen came after stop loss buy orders were triggered. Traders reported option structures at 83.00 which were attracting protective dollar sell orders.
A break above 83.00 would expose resistance around 83.10 to 83.15, the 76.4 per cent retracement of the dollar's decline from April to a record low in October last year. The yen's losses have gathered pace since the surprise Bank of Japan easing last month and the anticipation that it might have acted again today.
The Australian dollar was again under pressure falling 0.1 per cent to $1.0491 though off the seven-week low touched yesterday.