FX IN EUROPE - Yen prowess cows euro and dollar
LONDON, Aug 18 (Reuters) - The yen was strong across the board early in Europe on Wednesday, rallying to six-month highs against the dollar and all-time peaks against the euro.
Expectations of a pick-up in Japanese economic activity is seen generating demand for Japanese stocks and the yen, while the recent absence of Japanese intervention on the foreign exchanges has encouraged bulls to keep pushing the yen higher.
Japanese Finance Ministry official Haruhiko Kuroda reminded dealers overnight that the authorities were ready to take decisive action to prevent a premature yen rise which could hurt the country's economic recovery but analysts said verbal warnings would not be enough to stem yen gains.
''It will be difficult to stop the yen rising and words will certainly not be enough,'' said Ian Gunner, foreign exchange strategist at ABN Amro in London.
''Now that dollar/yen has broken below 113.50, the risk is we could go down as far as 112 or even 111.50 by the end of the week.''
The dollar fell to lows near 113.35 yen by 0659 GMT, its weakest since February 8, while the euro sank to troughs near 119 yen, down nearly three percent so far this week and more than nine percent weaker since its January launch.
These lows in the single currency are equivalent to a mark/yen rate of about 60.85, the mark's weakest levels since July 1995.
Dealers have been more inclined to drive the yen higher since Bank of Japan Governor Masaru Hayami said on Tuesday there were limits to what the authorities could do to combat persistent strength in the yen. He also urged firms to make greater efforts to shield themselves from currency swings.
''It looks like the Japanese know they can't do anything about this,'' said Jeff Woodruff, foreign exchange strategist at Bank of Boston in London.
''Given we don't see intervention on the cards, they are going to have to watch the yen go higher.''
While the Bank of Japan has intervened at least seven times since June 10 to curb yen strength, it has not been seen selling its currency since July 21.
The yen initially made its biggest gains against the euro this week, driving the single currency to a 3-1/2-week lows around $1.0485 on Tuesday.
However, the sharp drop in dollar/yen seen early in Europe on Wednesday saw the single currency begin to claw back ground. It was at $1.0541/45 from $1.0510/14 late in Europe on Tuesday.
Gloom about the dollar's prospects was compounded by its apparent inability to derive sustained support from gains U.S. stocks and bonds have racked up recently as U.S. economic reports have assuaged inflation fears.
''The market is disappointed by the dollar's performance overnight considering the rise in the Dow and the T-bonds,'' said Stephen Hannah, director of economic research at IBJ International in London.
Analysts said the U.S. currency's woes could soon be compounded if the closely-watched German July Ifo survey out on Thursday refocuses attention on a pick-up in economic activity in the 11-nation euro zone, analysts said.
The strength of the June Ifo report provided solid foundations for the rally which saw the single currency rebound seven percent from life lows and hit three-month highs against the dollar earlier in August.
Expectations of healthier economic performance in the euro zone were reinforced after the European Central Bank said in its August monthly report released on Tuesday that there were now clear signs that the region's economy would speed up in the second half of 1999.
Elsewhere in Europe, sterling was content to take its cue from moves in euro/dollar before the release of British July retail sales data and minutes of the Bank of England Monetary Policy Committee's August meeting at 0830 GMT .
Any signs of a pick up in economic activity or comments which reinforce the view that British rates have bottomed are expected to help the pound make independent gains.
Sterling was at $1.6076/86 at 0802 GMT, up 0.75 percent from the near-three-week lows it hit on Tuesday. Euro/sterling was at 65.49/55 pence from 65/63/72 late in Europe on Tuesday. |
