Dollar gains on ECB comments, Japanese uncertainty

Credit: Reuters/Shohei Miyano/Files

A woman counts Japanese 10,000 yen notes in Tokyo, in this February 28, 2013 picture illustration.

The yen normally tends to rise as Tokyo's stock market falls and that logic dragged the yen steadily higher as the Nikkei index sank 3 percent .N225 in the hours following gross domestic product numbers showing a 1.6 percent annualized fall.

But the third-quarter data was so bad - consensus had been a 2.1 percent rise - that it also raised the prospect that the Bank of Japan will eventually print further quantities of money after a snap election many expect to be called this week.

London investors sold the yen for the dollar in the first hour of trading, but it was still up 0.1 percent on the day against both the dollar and the euro. JPY=EBS EURJPY=EBS

'People (in London) are doing a bit of position squaring after getting caught out by the scale of this surprise,' said Daragh Maher, a strategist with HSBC in London.

'Initially I think people saw it as equities positive, yen negative, given the prospect that they will have to do more to stimulate the economy. But the magnitude of the surprise knocked the Nikkei back.'

The euro was roughly stable against the dollar, having earlier risen 0.3 percent to $1.2556 EUR= as the dollar pulled back from its highs against the yen.

The dollar index, a gauge of the greenback's strength against a basket of key currencies, was up 0.05 percent at 87.569 .DXY, just off a day's high of 87.626 hit early in the Asian session.

The Swiss franc traded at .12014 francs per euro EURCHF=, having hit a 26-month high of 1.2011, edging ever closer to the Swiss National Bank's three-year-old cap of 1.20 francs per euro.

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