Dollar firm as US Fed hints at stimulus tapering

TOKYO – The dollar held firm in Asia Thursday after rallying on comments by the head of the US Federal Reserve that it could begin to scale back its monetary easing program later this year.

In early trade the greenback bought 96.54 yen in Tokyo trade, a full yen higher than the previous day’s Tokyo trading levels and up from 96.39 yen in New York late Wednesday.

The euro fell to $1.3272 from $1.3297 while it also bought 128.12 yen from 128.24 yen.

The dollar is likely to resume its upward trend against the yen in the coming weeks, said Daisaku Ueno, chief foreign-exchange strategist at Mitsubishi UFJ Morgan Stanley.

While the Fed’s view that the US economy is getting better is not necessarily bad for stock markets, “it takes time to digest” a potential end to the bond-buying, especially because stock trading has been dependent on the Fed’s stimulus, he said.

“Once we pass the earnings season for the quarter ending June and an improvement in US economic indicators is confirmed from July onwards, the dollar is likely to strengthen and the yen is likely to weaken gradually,” Ueno told Dow Jones Newswires.

Fed chief Ben Bernanke said Wednesday it could begin to wind down its stimulus program later this year and bring it to a close by mid-2014, signaling a growing confidence in the US economy.

The Fed’s policy board kept its $85 billion-a-month quantitative-easing program locked in place for the meantime, saying unemployment remains high and growth is still being squeezed by government spending cuts.

The news sent bond prices — which move in the opposite direction to yields — and stocks down while the dollar climbed sharply.

Tokyo’s benchmark Nikkei stock index was down about one percent mid-morning following sharp falls in New York.

For the euro, market players were watching European manufacturing activity data as well as a Eurozone finance ministers’ meeting in Luxemburg later Thursday.