The dollar extended its retreat from a five-year high versus the yen as investors closed positions betting on further gains before year-end and ahead of data on the Federal Reserve’s preferred inflation gauge.
The U.S. currency last week advanced versus eight Group of 10 currencies as the Fed said it will reduce the size of its bond-purchase program and reiterated that benchmark rates will remain low contingent on jobless and inflation data. Australia’s dollar held its biggest advance in more than a month and traded about a cent from its three-year low.
“The short-yen trade is definitely the most populated in G-10 so almost by definition that makes it vulnerable to a correction,” said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney, referring to positions that profit from declines. Lower PCE price data “might be reason for the Fed to not persist with tapering for the time being. That would play dollar negative.”
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