Dollar ticks up, yen falls
The Japanese currency lost ground across the board ahead of the country's general election. Greenback rebounds after heavy selling.
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LONDON (Reuters) -- The yen fell broadly on Friday, hit by soft economic data ahead of Japan's general election, and sterling drew relief at the end of a torrid month from data that showed the UK economy contracted at a slightly slower pace than previously thought.
The Australian dollar hit a two-week high on growing expectations the Reserve Bank of Australia will raise interest rates before the end of the year, and the Swedish crown jumped after Swedish retail sales data easily beat forecasts.
With the euro flat on the day, the U.S. dollar index against a basket of currencies was marginally higher, although it had given back earlier gains.
With European stocks and oil 1% higher and U.S. stock futures pointing up, investors' appetite for risk supported "risk" currencies like the Australian dollar closely linked to the growth cycle to the detriment of others like the yen.
"The yen continues to change on global factors and swings in the risk cycle ... and 'risk' currencies like the Aussie are up again today," said Michael Hart, senior currency strategist at Citigroup (C, Fortune 500) in London.
The dollar and euro were both up 0.5% against the yen at ¥93.90 and ¥134.70, respectively.
Economic reports overnight showed Japanese deflation and the unemployment rate at record levels, and a sharp fall in household spending.
The Australian dollar was up half a percent at $0.8440, after hitting a two-week high of $0.8448.
Relatively strong domestic economic data and hawkish comments from RBA policymakers lately have prompted a shift in market expectations of when the central bank will hike rates, to November from December.
Sterling was up a third of a percent against the dollar at $1.6320 after revised UK gross domestic product figures showed a slightly slower pace of contraction in the second quarter of 0.7%.
But that still meant the annual rate of GDP decline was the biggest on record. And although much of the recent UK data has beat forecasts, sterling will post its steepest monthly fall this year against the dollar in August.
The euro was flat at $1.4350 and the dollar index, a trade-weighted measure of the dollar's value against six currencies, was up 0.1% at 78.09.
Traders noted talk of a euro options structure in the market held by a large Asian player that aimed at keeping the euro below $1.4450 and above $1.3950 until the middle of next month.
"The longer the ranges persist, the bigger the embellishment on these (options) rumors. There's definitely some barrier protection up there, though," said Peter Frank, senior currency strategist at Societe Generale in London.
"The data flow in general is conducive to a higher euro/dollar," he said.
Implied volatility on benchmark one-month euro/dollar options this week dipped below 10% for the first time in a year.
The U.S. dollar recovered much of the ground lost in heavy selling late in New York on Thursday. Traders had cited talk hedge funds had unwound long dollar positions and large dollar selling against the Swiss franc by a U.S. bank.
The dollar stood at 1.0580 francs, flat on the day and recovering from a 2009 low of 1.0529 francs.
Meanwhile, Sweden's crown rallied after domestic retail sales far outstripped forecasts and producer price inflation bounced back in July.
The euro fell as low as 10.13 crowns from around 10.19 crowns before the data, but rebounded from technical support at the 100-hour moving average at 10.13 crowns. 
