The yen fell for the first time in three days against the dollar and euro as global stocks rebounded from a weeklong rout, suggesting that investors were once again borrowing in the Japanese currency to fund bets on riskier assets.
Over the past week, investors have rushed to unload carry trade positions, funded in low-yielding yen or Swiss francs, fueling a decline in global equities as concerns about the U.S. economy fanned investor risk aversion.
The magnitude of the move, which caused the yen to post its biggest weekly percentage gain against the euro since August 2003, gave investors reason to pause and assess the climate for risk.
"We were due for some consolidation," said Bob Houck, a currency dealer with Wells Fargo in Minneapolis. With regard to how far the dollar had fallen against the yen, Houck added: "Just like it was a little overdone on the top side, now it's overdone on the bottom side."
A week of carry trade unwinding took the euro to a 3-1/2-month low of 150.74 yen on Tuesday, according to electronic trading platform EBS, from its record high near 160 late in February.
The dollar was up 0.8% against the yen. It hit a three-month low of 115.13 yen on Monday and posted its biggest weekly fall since December 2005 last week.
The euro edged higher after hitting 2-1/2-week lows on Monday.
Waiting For Payrolls
Financial market participants have been sensitive to moves in global equity markets and also the yen after last week's jarring price action shifted investor comfort with risk.
Meanwhile, U.S. economic data has not been a focus.
"The FX market still has its eyes on the equity market and so far U.S. stocks were not fazed by the weaker data, so the dollar will hang in there for now," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.
"Everybody is looking ahead to Friday's nonfarm payrolls data, which could be the key event for the dollar."
The euro edged up against the dollar after hitting 2-1/2-week lows on Monday. It has been trading within a narrow range of $1.3070 to $1.3260 since mid February.
High-yielding currencies such as the Australian and New Zealand dollars gained.
Several monetary policy meetings are scheduled for later in the week. The European Central Bank is expected to raise rates by 25 basis points to 3.75% after its meeting on Thursday.
Central banks in Australia and New Zealand, as well as Britain, also are scheduled to hold rate-setting meetings.
Earlier in the session the Bank of Canada left its overnight interest rate at 4.25%. The U.S. dollar was down.