Sun, May 11, 2003 - Page 10 News List

Dollar manages a minor recovery as equities rally

PROFIT TAKING The euro hit a fresh four year high against the yen. The week saw volatile market activity because of the Federal Reserve's warning of falling prices


The dollar concluded a bruising week by paring some of its losses against its major rivals in trading Friday as traders paused to book profits.

After breaching new four-year lows against the euro earlier in the global session, the dollar managed to stage a minor recovery, gaining slightly from day-earlier levels. Analysts attributed the euro's failure to forge ahead to profit-taking and pre-weekend positioning.

A rally for US equities, coupled with the lack of significant US data or other important news, provided traders with a convenient opportunity to sell euros.

"There's nothing fundamental going on here," said David Leaver, trader at Gain Capital in Warren, New Jersey. "It's profit taking ... and just people squaring ahead of the weekend."

Still, the long-term uptrend in the euro appears as strong as ever after the European Central Bank sanctioned its strong-euro policy Thursday, noting a strong euro would help keep a lid on inflation.

"We've seen pretty violent moves in the euro and it may be time for a pullback," said Ian Gunner, head of foreign-exchange research at Mellon Financial Corp in London. "But the euro could go as low as US$1.1150 without doing any damage to the uptrend."

The single European currency also hit a fresh four-year high of ?135.30 against the yen in early London trading, aided by a sudden slide in the yen which traders said is associated with recent Japanese intervention in the market.

The Bank of Japan is widely believed to have bought dollars and euros on behalf of the Ministry of Finance in the past couple of days, as dollar/yen threatened to break below the key ?116 mark.

Only at the end of the month will the Japanese government confirm whether it intervened. In the first quarter, Japan spent ?2.387 trillion in 24 currency-market interventions in an effort to cap the yen's rise against the dollar and the euro. A yen stronger than ?115 versus the US dollar would push most Japanese exporters' balance sheets into a loss, hence the government's defense of the level.

Late Friday, the dollar was trading at ?117.23 up steeply from ?116.85 late Thursday in New York. The euro was trading at US$1.1493, down from its global session high of US$1.1533 and down slightly from US$1.1506 late Thursday. Against the Swiss franc, the dollar was at 1.3137 francs, up from 1.3122 francs late Thursday.

The British pound was at US$1.6038, up compared with US$1.6013.

Strategists said that much of the week's volatile market activity stemmed from the Federal Reserve's warning on Tuesday that falling prices could hinder economic growth, and the decision by the Federal Open Market Committee (FMOC) to keep already low U.S. interest rates unchanged.

"It's difficult to tell whether the euro's rise is being driven by speculative or long-term money," said Ram Bhagavataula, chief economist with the Royal Bank of Scotland.

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