Last updated: January 3, 2013 11:16 pm

Dollar and yen climb as risk rally fades

The dollar and yen rose on Thursday as the rally that drove risk-sensitive assets to some of their biggest daily gains in the previous session began to fade.

The dollar also gained broadly after minutes of the last Federal Reserve meeting in December showed that policy makers were split on whether to keep buying assets until the end of 2013.

Wednesday’s gains for the likes of the Australian and New Zealand dollars had been forged from the wave of relief that swept financial markets after political negotiators in the US finally struck a deal to avoid the worst impact of the fiscal cliff.

Even towards the end of trade on Wednesday, however, the euphoria was declining, and the euro ended lower after strong initial gains, while sterling had lost most of its early gains. These two currencies were among the weaker performers on Thursday too: the euro lost 1 per cent to $1.3047 against the dollar and 1.2 per cent to Y113.87 versus the yen, while the pound fell 0.6 per cent to $1.6167 and 1.1 per cent to Y140.45.

Analysts said investor concerns would switch to the negotiations surrounding the raising of the US debt ceiling.

Lee Hardman, of Bank of Tokyo Mitsubishi UFJ, said: “This will involve another political battle over controlling public spending, and the policy uncertainty may damp further upside potential for risk assets.”

Commodity currencies, having been among the most active on Wednesday, were among the stronger performers against the dollar and yen on Thursday. The Australian currency, in particular, has been supported in recent sessions by data from China that indicated Australia’s key trade partner was continuing to intensify its economic output.

Data on Thursday showed that China’s increasingly important services sector expanded further in December. The purchasing managers’ services index climbed to 56.1 from November’s 55.6.

The Australian dollar was up 0.2 per cent against its US counterpart at $1.0519, but it was down 0.4 per cent to Y91.37 versus the yen.

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