FOREX-Yen under pressure, hits 11-mth low vs euro

By Ian Chua

LONDON, June 24 (Reuters) - The yen plumbed an 11-month low versus the euro and lost ground against the dollar on Tuesday on talk that investors in Japan were using summer bonuses to buy higher yielding assets overseas.

This contrasted with a Reuters poll showing Japanese individual investor sentiment on the stock market grew less negative in June, which should be a positive for the currency. For more on the poll, see [ID:nTKF003220]

"The market seems to be fixated with the idea that Japanese retail investors are sellers of yen," said Adam Cole, global head of FX currency strategy at RBC Capital Markets in London.

"Yen weakness seems to be driven by talk of strong retail outflows from Japan into overseas assets, possibly associated with the allocation of summer bonuses into overseas bond funds."

While investors might be more upbeat on Japanese equities, the search yield was highlighted by expectations for Japanese interest rates to stay on hold this year as euro area and U.S. borrowing costs rise.

Investors were also unwinding positions ahead of the outcome of the Federal Reserve policy meeting due on Wednesday after having sold the euro on the back of disappointing euro zone data in the previous session.

At 0800 GMT, the euro was up 0.2 percent against the greenback at $1.5560, recovering from Monday's fall to about $1.5467 after a closely watched survey showing contraction in the euro zone's manufacturing and service sectors.

The single currency gained 0.5 percent versus the Japanese currency to 168.03 yen after earlier reaching an 11-month peak of 168.26 yen.

The dollar rose 0.2 percent against a broadly softer yen to 108.00 yen, while the Australian dollar reached a seven-month high above 103 yen .

Against a basket of major currencies, the dollar slipped 0.2 percent to 73.279 .DXY.

Data on Tuesday was mixed. A report by market research firm GfK showed German consumers were likely to be less ready to spend money in July on worries about rising energy bills, and Italian consumer morale fell sharply in June.

But consumer spending in France jumped 2.0 percent in May, beating the consensus forecast in a Reuters poll for a rise of 0.7 percent.

FED MAY DISAPPOINT?

The Fed statement due on Wednesday following the two-day policy meeting will be the key driver for currencies this week.

While the U.S. central bank is widely expected to keep the key Fed funds rate unchanged at 2.0 percent, investors are keenly awaiting confirmation of market pricing of nearly 75 basis points worth of hikes by year-end. See [FEDWATCH].

But some analysts said the U.S. central bank might be less hawkish than some in the market are expecting.

"We expect this week's FOMC meeting to disappoint the market's expectation of three U.S. rate hikes before the end of the year," said UBS analysts in a report.

"In contrast the ECB is likely to raise interest rates next month so the euro should trade back towards the top of its $1.53/1.60 range. This will also drag euro/yen up as the Bank of Japan, like the Fed, is unlikely to raise interest rates either."

Reflecting a stronger risk taking mood among investors, European stocks were slightly higher in early trade .