NEWS / Foreign Exchange

FOREX-Dollar edges up as markets stay volatile

TOKYO, May 23 - The dollar ticked up on Tuesday but stayed shy of a two-week high versus the yen struck in the previous session, with investors nervous about how long the sell-off in emerging markets and stocks will continue.

Spiking volatility across assets has caught the attention of investors and overshadowed the currency market's focus on the massive U.S. trade deficit and whether the Federal Reserve will keep raising overnight interest rates.

Profit-taking on bets against the dollar helped the U.S. currency recover last week at the same time as speculators and investors rushed to cash in on winning wagers in gold, commodities and stocks.

While global equity markets remain weak, the profit-taking in currencies seems to have run its course and traders said the market would likely begin building up positions on a renewed dollar slide.

The dollar surged more than 1 percent against the yen on Monday only to give up all those gains by the end of New York trade, while investors switched funds into the safe-haven Swiss franc. "I think the dollar fell yesterday just because position adjustments had finished," said a trader at a European bank. "People will start selling the dollar again."

Worries about a narrowing U.S. yield advantage along with a growing conviction that U.S. officials want a weaker dollar to help reduce the country's gaping deficits have conspired to drive the dollar to one-year lows against the euro and pound this year.

In early trade, the dollar edged up to 111.75 yen <JPY=> from near 111.55 yen in late New York trade but was off the two-week high of 112.95 yen.

The euro slipped to $1.2850 <EUR=> from $1.2865 but has rebounded sharply from a low of $1.2692 in Asian trade on Monday. Against the yen, the single currency was little changed near 143.55 <EURJPY=>.

Reflecting the asset volatility, gold plunged almost $100 from a 26-year high before rebounding on Monday. In Asia, gold gained $3.60 to $660.10 <XAU=>, up from a one-month low of $636.20.

Gold and the dollar tend to move inversely to each other.

Dealers said if emerging and equity markets start to calm down, currency players will likely switch their attention back to the outlook for Fed policy.

The Nikkei share average <.N225> shed 1.6 percent, taking its losses over the past two weeks to more than 9 percent.

Signs of building U.S. inflationary pressures last week have revived expectations for the Fed to raise rates for a 17th straight time in June, which would take the fed funds rate to 5.25 percent.