The US dollar lifted again on Friday, hitting a fresh 27-month high versus the yen and making sturdy gains against the euro and the pound amid light holiday trading volumes.
The yen fell back overnight following slightly weaker-than-expected Japanese inflation data and continued pressure from the government on the Bank of Japan not to tighten monetary policy weakened the yen overnight.
The US currency made broader gains during New York trading. Some analysts said dollar buying from US companies repatriating overseas earnings under the Homeland Investment Act tax break kept the greenback moving higher.
Others said the advance owed more to investors continuing to jump on the bandwagon of the dollar's uptrend of recent weeks.
The dollar's climb was made easier by Friday's low trading volumes, which meant that medium-size orders can have a bigger impact on exchange rates. US stock and bond markets close early after Thursday's Thanksgiving holiday. That lifted the greenback as high as ?119.69, taking the US currency through its previous two year peak of ?119.58 set on Nov. 16.
Late afternoon, the dollar was at ?119.62, up from ?118.93 late Thursday in Toronto, according to electronic foreign exchange broker EBS, and the euro was at ?140.15, from ?140.06. The euro was at US$1.1713, from US$1.1787. The US dollar was at 1.3205 Swiss francs from 1.3150 and the pound was at US$1.7135 from US$1.7220.
The yen was the main loser overnight, after Japan reported its nationwide core consumer price index for last month was flat on year as expected. However, Tokyo core CPI for this month slipped 0.3 percent, compared with forecasts for a 0.2 percent fall.
While the Bank of Japan uses nationwide core CPI as a benchmark for its ultra-easy monetary policy, Tokyo CPI is considered a leading indicator of price trends, so the results suggested the end of the bank's ultra-easy monetary policy remains some way off.
The data come as the Japanese government ratchets up the pressure on the bank not to tighten policy in the near-term.
Officials from Prime Minister Junichiro Koizumi's cabinet and from his Liberal Democratic Party have warned the economy remains too fragile for the bank to be looking to tighten its stance.
Japanese Finance Minister Sadakazu Tanigaki kept up the pressure on policymakers, saying the domestic economy remains in a state of mild deflation and the government and central bank must continue to work to get prices rising.
The Bank of Japan has long said it is looking to scale back its quantitative easing policy -- the extra liquidity it pumps into the banking system -- after inflation data turn positive, which is expected to happen late this year. Policy-makers had indicated the change of policy could come early in fiscal year 2006.
Hans Redeker, global head of foreign exchange strategy at BNP Paribas in London, said it is increasingly clear that the government is seeking to undermine the Bank of Japan "where ever they can" and said this was convincing the market that the bank will not be able to adjust monetary policy in the way they would like. That means not only that quantitative easing may not end soon, but that if inflation picks up, real interest rates will actually start to fall.
"That is going to be quite nasty for the exchange rate," he said.
Elsewhere on Friday, the Canadian dollar bucked the general trend and lifted to its strongest level against the US currency in four weeks. That came despite opposition parties introducing a no-confidence motion Thursday expected to topple Canadian Prime Minister Paul Martin's government and force an election in January. The House of Commons is expected to vote today on the motion.
Analysts said currency markets have already factored in the political uncertainty and that continuing interest by foreign companies in acquiring Canadian businesses is buoying the Canadian dollar. The US dollar was at C$1.1692 in late trading from C$1.1717 late Thursday.
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