The euro fell 0.7 percent and the Australian dollar 0.6 percent against the yen, and the European currency triggered sell orders as it headed down to 112.00 yen, with more sell stops expected below that threshold.

Talk of month-end yen demand from Japanese exporters as well as dollar selling by overseas hedge funds who had bought the pair the day before helped push the Japanese currency nearer to Monday's 15-year peak of 80.41 yen per dollar and within a yen of its record trough of 79.75 set in 1995.

But the major currencies were broadly in the ranges that have confined them in the past few weeks as investors wait to see if the Fed says next week that it will resume quantitative easing as many expect, and if so, in what size and over what time horizon.

"Overall the moves seem to be of the position unwinding variety," said a trader for a Japanese brokerage house.

Japanese shares also fell, with the benchmark Nikkei average .N225 down 1.8 percent, making some speculate this could temper the dollar's fall as the market might become cautious of Japanese yen-selling intervention.

A falling share market is seen as one of the conditions which could prod Japanese authorities to intervene, after they did so in September to counter a push higher in the yen.
 

U.S. bond yields have risen this week partly as euphoria over the Fed's likely asset purchase programme is being replaced by doubts over the size of such a move. [US/]

"A model player's buying is pushing up the euro in thin trade. But given that U.S. bond yields have risen, the dollar will go in the same direction in the near term," said a trader at a Japanese brokerage.

The dollar's fate has had a close correlation to U.S. yields and their gap with rates on other currencies, as increases in U.S. yields -- other things being equal -- tend to help the greenback by making dollar investments more attractive.

With the gap between Japan and U.S. two-year yields near a three-week high and that for 10-year yields near a 2-½ month high, dollar/yen could have further room to rebound, some traders said.

Dollar/yen JPY= dipped 0.2 percent on the day to 81.60 yen, but it was still more than a full yen above Monday's 15-year low of 80.41 yen.

 

The euro EURCHF= rose to 1.3691 francs, its strongest since Aug. 11, with traders citing reports of a large option barrier at 1.3700 francs due to expire later on Wednesday.

The Swiss franc earlier hit a one-month low versus the dollar CHF= of 0.9915.

Data has indicated economic momentum will likely slow in Switzerland in coming months, albeit from a high level.
 

The U.S. currency steadied against other currencies, with the euro stuck below $1.40 as market participants pondered how much monetary easing the Federal Reserve would opt for and how much may be priced in to an already weak U.S. currency.

Helping steady the dollar were comments by New York Fed President William Dudley overnight, who said the economic context would determine whether an incremental or big bang approach to asset purchases was better.

The market was also wary about pushing the dollar lower versus the yen due to worries about possible intervention after Japanese Finance Minister Yoshihiko Noda said Japan would take decisive steps on forex when needed.

At 0746 GMT, the dollar was up 0.5 percent at 81.15 yen JPY=, with traders citing talk of Japanese investors buying to take it above reported stop losses at 80.90 and 81.05 yen.

The dollar's record low of 79.75 yen has become a focal point. It hit a 15-year trough at 80.41 yen on Monday, with players wary Japan may intervene if it nears 80.00
 

The dollar dropped to as low as 80.65 yen JPY= on trading platform EBS, its weakest level since 1995 and down about 0.9 percent on the day.

The market is wary that Japanese authorities might intervene to defend the 80.00 yen level to prevent the dollar from reaching the record low, after they stepped in to sell yen on Sept.15 for the first time in more than six years.

Since then, however, the dollar has continued to fall across the board as the market has anticipated a second round of quantitative easing expected from the Federal Reserve later this year, possibly at its next meeting on Nov.2-3.
 

The euro EURCHF= rose to as high as 1.3544 against the Swiss Franc, and was up 0.55 percent for the day. Semi-official names were cited as buyers of the dollar/swiss pair CHF=.

The dollar rose as far as 81.84 yen JPY= from about 81.00 yen before the comments came out and the euro fell 0.6 percent in a matter of minutes as the market, taking the comments to imply that the dollar did not need to fall further against major currencies, covered dollar short positions.

"It's become a bit difficult to test the dollar's downside for now," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust Bank.

"It seems as if the G7 has formed a united front ahead of the G20 meeting, as he's saying he's mainly focusing on emerging economies when it comes to currencies."

In an interview in the Wall Street Journal, Geithner divided currencies into three categories, with the first, including China's yuan, undervalued by any measure, while the second were of emerging economies with flexible exchange rates that intervene or impose taxes.

The third was the major currencies, "which are roughly in alignment now", he was quoted as saying.

The dollar later retreated to 81.25 yen, up just 0.2 percent on the day, as the market examined the comments more closely.
 

The dollar index dipped 0.2 percent to 78.041.DXY =USD after climbing more than 1.6 percent the previous day.

But its breach of resistance near 77.93, its Oct. 12 high, and through 77.894, a 23.6 percent retracement of its August-October slide, could pave the way for a move to the 78.96-98 area, which would be a 38.2 percent retracement of that August-October drop.

Investors had increased their bets against the dollar in recent weeks on heightened market expectations for the Federal Reserve to unveil a second round of quantitative easing as early as November.

That positioning had pointed to the risk of a short-covering bounce in the dollar.

"I get the sense that the dollar could rise further in the near term," said Hideki Amikura, deputy general manager for Nomura Trust and Banking's foreign exchange section.

"Market moves fuelled by excessive liquidity stemming from the United States may be drawing to a close," Amikura said.
 

With quantitative easing from the Federal Reserve now well-priced in ahead of its Nov. 2-3 meeting, currencies have broken higher ground against the dollar, with the euro topping $1.4160 last week and the Australian dollar testing parity.

But squeezing out more gains is likely to be tough until the market sees how sizeable QE will be, with one trader saying, for Tuesday at least, short-term players were simply flipping positions within tight ranges.

The euro has failed to clear $1.4000 again after Friday's surge above $1.4100 and this was seen as a caution by some that more long euro/short dollar positions could unwind, with the euro's Oct. 12 low of $1.3775 EUR= seen as a possible target.

"I think we will see a pull-back in the euro in the near-term," said a Japanese brokerage house trader, noting the recent build-up of short dollar positions.

"The market probably has gone as far as it can go based on the factors in the United States."

The euro was flat at $1.3933, well below Friday's eight-month high. Initial support is expected at $1.3825, with resistance up at $1.40 and a move above $1.4050 needed to restart its rally.
 

The dollar is on the verge of sliding to a 27-year low against the Australian dollar, which shot up after surprising strength in the job markets revived talk of a rate hike by the Reserve Bank of Australia.

The dollar's latest decline has made many traders nervous about Japanese intervention, as the U.S. currency was flirting with the levels where Tokyo started its first intervention in six years on Sept. 15.

Still, some market players speculate that Japan may refrain from intervention ahead of a Group of Seven (G7) policymakers meeting this weekend where the threat of "currency war" is likely to dominate discussion.

Fuelling that view were comments from U.S. Treasury Secretary Timothy Geithner on Wednesday that global institutions must persuade emerging nations such as China to let their currencies rise or risk a round of competitive depreciations that would endanger the world economy.
 

Comments by Chicago Fed President Charles Evans, who was quoted as saying the central bank should do much more to spur the economy , boosted speculation that the Fed will resume quantitative easing, possibly as early as its November policy meeting.

The dollar index =USD .DXY fell as far as 77.616, its lowest since January 20, and just above support at 77.60-61.

The dollar was less than half a yen above September's 15-year low of 82.87 yen JPY=, supported by jitters that Japanese authorities could intervene again if it retested that level, after last month's yen-selling intervention.

Analysts said the dollar's weakness was likely to continue with the market apparently dividing currencies into two groups of QE and non-QE, with the yen, the dollar and sterling in the first group and the euro the most prominent in the second.

"Given all the talk of more QE by the Fed, the trend for the dollar index is lower and it can fall another 3-4 percent from these levels," said Neil Mellor, currency strategist at Bank of New York Mellon.

"So with the dollar heading lower we will see the rhetoric about global currency wars and intervention escalating. The flows data that we are seeing suggest massive amounts of funds are moving to emerging countries in search of higher yields."
 

The dollar index fell to 82.242 .DXY, its weakest since early May as the euro EUR= rose as high as $1.2980.

"The market seems to want to sell dollars whatever," a London-based trader said.
 

The Australian dollar slid in early Asian trade after the China Securities Journal reported the economy may lose momentum more than expected later this year.

It temporarily pared losses following the release of Chinese official data but soon started to ease again on the selling by model-based funds, traders said.

"The data has attracted much attention but at the end of the day it wasn't far from market expectations. It showed the Chinese economy is slowing down, but that's what markets have been looking for," said Hideaki Inoue, manager of foreign exchange at Mitsubishi Trust and Banking Corp.

The Australian dollar stood at $0.8772 AUD=D4, down 0.7 percent on the day. It hit a two-month high of $0.8871 on Wednesday.

It also dropped 1 percent to 77.28 yen AUDJPY=R.
 

The dollar could come under more pressure, especially against higher-yielding currencies, in reaction to robust U.S. corporate earnings. Intel Corp (INTC.O) reported results above expectations and gave an upbeat sales outlook, pushing S&P futures higher .SPX. [ID:nN12197658]

Traders said funds were increasingly moving out of cash and low-yielding U.S. Treasuries to buy euro and growth-related currencies. Helping drive sentiment was a strong start to the U.S. corporate earnings season and easing concerns about euro zone's sovereign debt and the financial sector.

The euro EUR= held steady from late U.S. trading on Tuesday at $1.2725. It hit a two-month peak of $1.2739 EUR=EBS on Tuesday, brushing aside a Moody's downgrade of Portugal's sovereign rating by two notches.

Instead, investors chose to pay more heed to the strong response to a six-month treasury bill tender by Greece. The debt-laden country sold 1.625 billion euros ($2.03 billion) of T-bills at a better rate than it pays to borrow under a European Union/International Monetary rescue fund.

"What we are seeing is that cash is being put back to work with all the negative news surrounding the euro zone receding," said Greg Gibbs, currency strategist at RBS, Sydney.
 

The euro held steady at $1.2595 EUR=, with resistance seen roughly around $1.2690, the trendline from the December high. Near-term support is seen near $1.2550, the previous session's low.

Investors were also cautious about the single currency ahead of Greece's return to capital markets for the first time since late April.

The debt-laden country is seeking to raise 1.25 billion euros through a sale of six-month Treasury bills. That could prove to be a litmus test for the euro in the short term ahead of the results of the euro zone banks' stress tests next week, traders said.

A robust response to a Spanish debt auction earlier this month saw the euro rally to two-month highs. That coincided with worries the U.S. was heading towards a double-dip recession, sending the greenback to its lowest in nearly two-months against a basket of currencies.

Those concerns have taken a back seat for now, but traders said real money investors and margin traders were still being cautious, given lingering worries about a global slowdown.

"The way they are positioned, there is still a feeling that a a double-dip recession could happen," said Jonathan Cavenagh, a currency strategist at Westpac, Sydney.

"I think they could be in for a major surprise if a majority of U.S. corporate results beat expectations. That should see the U.S. dollar stage a comeback and hence investors are a bit cautious about going too short."
 

The yen pared initial losses after Japanese election results that showed political uncertainty ahead.

The dollar rose across the board, recovering from a fall against a currency basket late last week to its lowest since early May, as investors crept into dollar-denominated assets, a common occurrence during times of risk aversion.

Investors awaited more details on stress tests on 91 European banks -- the results of which are due later in the month -- as the European Union seeks to restore confidence in the sector.

Analysts said that despite the euro's rally this month, its failure to break above a key downtrend line had stalled its upward momentum.

"We saw a decent comeback in the euro in the past week, so there's been some profit taking on that move," said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.

"There's some nervousness in the market, and prices are rising on risky assets."

Analysts said the efficacy of the stress tests would depend on how much detail they include, and the possibility the results may be thin on in-depth information was weighing on the euro.

 

The ruling Democratic Party of Japan and its coalition must win 56 seats to maintain its Upper House majority. This is a crucial task for Prime Minister Naoto Kan--who is considered an aggressive fiscal reformer--because his first term as head of the DPJ, and thus the premier, will expire on Sept. 30.

For Kan to remain in power, he must be re-elected in an intra-party vote; and to win that race, he can't afford to lose many seats at the weekend, analysts said.

"If they (the DPJ) fail to win 56 seats, there will be the risk of a leadership challenge. That's yen-negative," said David Forrester, a strategist at Barclays Capital.

Latest opinion polls by local media show the DPJ will fall several seats short of a majority.

As of 0450 GMT, the greenback was at Y88.63, up from Y88.38 in New York Thursday. The execution of automated stop-loss dollar-buying orders at around Y88.50 helped the currency's ascent, dealers said.

The euro, meanwhile, was at $1.2684 and Y112.40 from $1.2703 and Y112.27 in New York overnight.

Analysts said the euro is likely to fall ahead though it has rallied of late, hitting $1.1876 on June 7 and Y107.30 on June 29.

"The economic fundamental landscape in the euro-zone remains disconcerting," said Tim Davis, a senior analyst at Morgan Stanley.

Investors are waiting for results of stress tests on European banks, which are due on July 23. Davis said the outcome of the tests could prompt investors to resume a euro-selling campaign.

It is possible there will be "plenty of negative headlines that could propel the euro lower," Davis said. "We'd like to use current levels to sell the common currency" to beef up the long-term investment portfolio.
 

The euro EUR= eased 0.4 percent to $1.2578, after meeting resistance around the May 21 high of $1.2673 and on selling from a hedge fund. It hit $1.2663 on trading platform EBS on Tuesday, the highest in about seven weeks.

Still, one positive factor for the euro was the fact that it finished Tuesday's U.S. trading above resistance at the bottom of the daily Ichimoku cloud -- a signal that its entrenched downtrend may be over.

The euro in mid-December slid beneath the cloud on the Ichimoku chart, the Japanese chart pattern that is closely followed across markets, and had mostly traded below it since then. But its rise back into the cloud suggests the single-currency may have entered a consolidation phase.

"The euro is in a retracement phase in the wake of its drop to below $1.2 and could rise back towards the top of the cloud," said Tokichi Ito, deputy general manager for Trust & Custody Services Bank's forex team.

While worries about the euro zone's debt woes linger and market players refrain from actively taking long positions in the euro, Ito said the euro may see a short-covering bounce towards $1.2800, near the top of the daily Ichimoku cloud.

The euro was also supported after a strong response to a syndicated Spanish debt sale. The robust demand eased some of the worries about the debt problems in the euro zone, although traders said they would remain cautious until the stress test results of the euro zone's banks are out later this month.
 

The Reserve Bank of Australia (RBA) left its cash rate steady at 4.5 percent as expected, saying the global economy had continued to expand, albeit unevenly, with growth in Asia very strong and signs of China moderating to a more sustainable rate.The Aussie fell in thin trading ahead of the announcement as some had expected it to sound a more dovish note, and on the charts it formed a short-term double bottom at $0.8317 AUD=D4, a drop which helped set it up technically for a rebound.

"There were concerns among dealers that the RBA would be very bearish about the economy before the rate announcement. But the central bank was not that dovish, prompting players to buy back the Australian dollar, as well as the euro," Daisuke Karakama, market economist at Mizuho Corporate Bank.

"But there were no new factors out. The only thing we can say is that the euro and the Aussie are in a rebound phase."

The Aussie stood 0.4 percent up on the day at $0.8437 AUD=D4 after earlier dropping to test support at $0.8315, a low set last week.

Against the yen it climbed 0.6 percent on the day at 74.08 yen AUDJPY=R after sliding as far as 72.73 yen.

"The RBA is refusing to panic, as many in the market seem to be," said Brian Redican, senior economist at Macquarie.
 

The euro EURCHF= rose around 50 pips to the day's high of 1.3265 francs, according to Reuters data, as the news prompted broad selling in the safe-haven Swiss currency.

The franc CHFHUF= also hit a session low against the Hungarian forint, trimming some gains from its recent rally against the Hungarian currency.