Tokyo - The dollar held firm in Asia Tuesday after it slumped following a surprise weekend announcement that the front-runner to head the US Federal Reserve had withdrawn from the race.
In Tokyo afternoon trade, the greenback fetched 99.15 yen from 99.11 yen Monday afternoon in New York, while the euro was marginally up at 132.33 yen and $1.3339 compared with 132.20 yen and $1.3337 in US trade.
The dollar had faced selling pressure on news that Larry Summers, a trusted advisor to US President Barack Obama, would not replace Ben Bernanke as the next Fed chairman in January.
The withdrawal by Summers, viewed as more favourable to tighter Fed policy than current management, came as the central bank starts a two-day policy meeting later in the day with speculation running high that it would start reeling in its $85 billion-a-month bond buying scheme.
The pace of any pullback is a key issue for markets and investors are keeping a close eye on how the Fed tweaks its quantitative easing programme.
“This places Janet Yellen, current Fed vice-chairman, as the clear favourite to get the job,” RBS Senior FX Strategist Greg Gibbs told Dow Jones Newswires.
Uncertainty is now higher but “most of it shifts towards the perception that the post-Bernanke Fed regime will be just as dovish if not more so,” he added.
However, London-based Capital Economics added that “the whole issue of who eventually takes over at the Fed next year will be overshadowed... by the Fed's decision on what it plans to do with its monthly asset purchases in the meantime”.
With the world's biggest economy still wobbly, and Obama facing tough battles with Congress over the budget and the borrowing ceiling over the coming weeks, some think the Fed might not opt for any dramatic move.
Markets are also keeping an eye on a widely watched German investor confidence index that will offer more clues about the state of Europe's biggest economy.
The dollar was mostly higher against other Asia-Pacific currencies.
It firmed to Sg$1.2635 from Sg$1.2620 on Monday, to 31.82 Thai baht from 31.68 baht and to 11,335 Indonesian rupiah from 11,121
The dollar also strengthened to 1,085 South Korean won from 1,083 won, to 63.54 Indian rupees from 62.64 rupees, and to 43.72
Philippine pesos from 43.70 pesos. It was flat at Tw$29.63.
The Australian dollar weakened to 93.11 US cents from 93.29
cents, while the Chinese yuan fetched 16.18 yen from 16.17 yen. - Sapa-AFP