Tokyo - The dollar edged down against the yen on Thursday after hitting five-year highs in New York in response to the US Federal Reserve's decision cut back its stimulus programme next month, citing a pick-up in the economy.
Emerging market currencies fell having previously enjoyed healthy rallies on the back of the stimulus as traders took advantage of Fed's cheap rates to seek out better returns.
In early afternoon trade the greenback eased to 104.00 yen in Tokyo from 104.20 yen late in New York, where it peaked at 104.36 yen - its highest since early October 2008 - but still well up from levels just below 103 yen in Tokyo on Wednesday.
The US unit was a tad higher against the euro. The single currency bought $1.3656 on Thursday, against $1.3680 in New York, and much stronger than the $1.3770 mark in Tokyo on Wednesday. The euro was also at 142.51 yen compared with 142.56 yen.
The Australian dollar fell to 88.21 US cents at one stage on Thursday - its lowest level against the greenback since August 2010 - and in the late morning it edged up slightly to 88.27 cents.
At the end of a closely watched two-day meeting the Fed on Wednesday said it would reduce its bond-buying by $10 billion next month to $75 billion, citing a string of upbeat data indicating the world's number one economy is strengthening.
It added that it would likely take “further measured steps at future meetings” if the economy continues to improve while keeping interest rates a record lows “well past the time” the unemployment rate declines below 6.5 percent - its previous cut-off point before tightening monetary policy.
The news sent the greenback surging in New York as the prospect of fewer dollars sloshing around the financial system boosted demand.
Despite the slight dip on Thursday, analysts said said the dollar's ascent may not be finished.
“The dollar could rise above 105 yen (in the) near-term” as investors become more confident of buying higher-risk assets, Yoshihiro Okumura, general manager for research at Chibagin Asset Management, told Dow Jones Newswires.
Investors were heartened by the US central bank's assessment that recent upbeat data was “consistent with growing underlying strength in the broader economy”.
Highlighting that trend, data on Wednesday showed sales of new US homes soared in October in the biggest monthly increase for 33 years.
The Fed had said it would start scaling back its bond-buying programme when the world's largest economy shows signs it is on a solid footing.
“While data-dependency rules out any preset course, we expect modest reductions of $10 billion at upcoming meetings that will lead to an end of the programme late in 2014,” Credit Agricole said.
“Stronger growth and an acceleration of the economy are favourable for equities and likely to boost the US dollar through increased capital flows over the coming year.”
The euro was also supported by German business and investor confidence reports that offered an upbeat view on Europe's biggest economy.
On Wednesday, the Ifo economic institute's closely watched business climate index rose to its highest level since April 2012, while on Tuesday the closely watched ZEW investor confidence barometer hit a seven-and-a-half year high.
The yen could face further pressure as the Bank of Japan starts a two-day policy meeting on Thursday, with speculation rising that it will add to its own stimulus to boost growth.
Against emerging market units the greenback rose to Tw$29.77 from Tw$29.69 on Wednesday, to 1,059.10 South Korean won from 1,052.35 won, to 62.11 Indian rupees from 61.87 rupees, to 32.35 Thai baht from 32.23 baht, and to 44.42 Philippine pesos from 44.29 pesos. - AFP