Sun, Jul 24, 2005 - Page 10 News List

US dollar rebounds as market rethinks knee-jerk sell-off


The dollar rebounded on Friday as the market reconsidered the sharp selloff in the greenback in the wake of China's move to revalue its currency and reacted to fresh security incidents in London.

The dollar stood at ?111.36 at 9pm GMT after ?110.29 late Thursday in New York.

The euro meanwhile slipped to US$1.2061 against US$1.2169 on Thursday in New York.

The US currency found buyers after a steep sell-off that was linked to concerns about how the Chinese yuan revaluation might affect capital flows to the US and the bond market.

"It's basically an unwinding of the move that was quite drastic following the revaluation," said Ashraf Laidi, chief currency analyst at MG Financial Group.

"People knew that the revaluation was minor, albeit didn't want to sit and contemplate on how minor it was and instead, they just went in and sold dollars and bought yen," he said.

"Now there is a time before the weekend comes, people reassess the position and unwind some of those positions," he said.

Some analysts also noted the dollar rebounded as the market shifted back to concentrate on interest-rate differentials, which have largely supported the dollar rally so far this year.

"Interest rate aspect will continue to support the dollar as long as expectations in the market exist that the Fed will continue to tighten," Laidi said.

CALYON analyst Mitul Kotecha said he expected dollar strength against the euro to resume following the knee-jerk sell-off on Thursday, although losses against the yen were set to continue.

"We look for dollar strength to resume, with the notable exception of the yen, where we expect further appreciation in the months ahead," he said.

The move by the People's Bank of China was positive but the revaluation was limited, and speculation over further moves to increase the yuan's flexibility was likely to continue in the coming months, Kotecha said.

The Chinese central bank on Thursday announced a 2.1 percent revaluation in the yuan-dollar rate, with the Chinese currency set at 8.11 yuan to the US dollar from 8.2765 yuan previously.

It also said the decade-old, yuan-dollar peg would be replaced by a managed float against a basket of currencies.

Following the move, the central bank of Malaysia also announced a decision to remove the ringgit's peg to the dollar and to replace it with a managed float against a basket of trade-weighted currencies.

In late New York trade, the dollar stood at 1.2979 Swiss francs from SF1.2847 on Thursday.

The pound was being traded at US$1.7388 from US$1.7519 late on Thursday.

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