By Daniel Bases and Wanfeng Zhou
NEW YORK, April 16 (Reuters) - The yen tumbled against the
dollar and the euro on Tuesday, reversing the previous session's
sharp gains as investor anxiety triggered by a record plunge in
gold prices eased, denting demand for the safe-haven Japanese
A drop in U.S. consumer prices and slippage of U.S. factory
output strengthened the argument for the U.S. Federal Reserve to
maintain its monetary stimulus in hopes of boosting the economy.
"The CPI data reinforces the view that the Fed is likely to
engage in quantitative easing for some time," said Eric Viloria,
senior currency strategist at Forex.com. "That is one of the
reasons for support of the markets and sentiment in general. I
think that is aiding the rebound here (in the yen) and why the
U.S. dollar is weak."
Finance minister and central bankers from the world's
leading economies will discuss economic and financial market
outlooks, including the Cyprus crisis and asset price reactions,
at the talks among the Group of 20 advanced and emerging
economies beginning on Thursday in Washington.
The euro rallied to a seven-week high against the dollar,
partly helped by its 2 percent jump against the yen. Investors
shrugged off data showing a sharp fall in German investor
sentiment in April.
A break of the euro above its 100-day moving average against
the greenback around midday in New York spurred some blackbox
algorithmic trading that further boosted the euro.
"A more significant signal is if we close above that level,
and it looks like we might do that," said Viloria.
The euro rose 1.1 percent to $1.3184, with central
bank buying reported. It hit a session peak of $1.3201, the
strongest since Feb. 25, after breaking resistance around
$1.3140/50. The next key level on traders' charts is in the
Gold rose on Tuesday, one day after a record-breaking drop
sparked a broad selloff in commodities and equities alike.
Monday's explosions in Boston added to the nervous tone in
Two bombs ripped through the crowd at the finish line of the
Boston Marathon on Monday afternoon, killing three people and
maiming and injuring more than 100. President Barack Obama on
Tuesday called the bombings an "act of terror."
"Yesterday there was a lot of fear in the market, especially
as people were watching what's going on in gold," said Douglas
Borthwick, managing director at Chapdelaine Foreign Exchange in
New York. "There's a thought that maybe things were overdone in
the yen cross."
But as gold and stock prices stabilized and investors
concluded that the bombings may have been an isolated incident,
they resumed buying higher-risk assets and selling the
A senior Canadian financial official said Canada was
supportive of Japan's effort to kick-start its economy and that
the G20 believed policy should target domestic economies and not
exchange rates. The comments added to buying sentiment for the
euro against the yen from oversold levels, analysts said.
The dollar peaked at 98.15 yen, according to Reuters
data. It last traded up 0.83 percent to 97.55 yen.
A sharp rally in the dollar against the yen stalled in
recent sessions as investors booked profits ahead of significant
resistance and option barriers at the psychological
100-yen-per-dollar level. Analysts said, however, that the
weakening yen trend remained intact after the Bank of Japan's
aggressive monetary easing earlier this month.
"The fundamental picture still remains supportive of a
weaker yen going forward as the recent rebound over the last
couple of days is unlikely to prove sustainable," said Lee
Hardman, currency economist at BTMU, which forecasts the dollar
at 109 yen in 12 months.
Investors will also closely monitor gold prices, and another plunge could renew demand for the most liquid currencies such as the dollar and yen.
The euro rose 2 percent to 128.66 yen, having hit
a session peak of 128.99 yen, according to Reuters data.
The Australian dollar rose 0.75 percent to $1.0389,
while the New Zealand dollar gained 1 percent to $0.8497
. Both saw steep losses in the previous session.