New York, Sept. 29 (Bloomberg) -- The euro rose to its
highest level in four weeks against the dollar as comments by
European Central Bank Vice President Christian Noyer boosted
expectations the ECB will raise interest rates in coming months.
Noyer said there are ``some upside risks' to inflation in
the euro region. He also said he was ``quite confident on the
euro,' and that ``the euro is soundly based on price stability
and therefore has potential for appreciation.'
His remarks bolstered the view the ``ECB is becoming more
hawkish, more prone to hike rates,' said Tomas Jelf, a foreign
exchange strategist at Warburg Dillon Read in Stamford,
Connecticut. ``That's what's taking (the euro) higher.'
The euro rose to $1.0642, from $1.0525 yesterday in New
York, closing above $1.06 for the first time since Sept. 3. The
yen fell to a three-week low of 113.85 per euro from 112.04.
Gains in the single European currency also came as a German
Finance Ministry report raised expectations for a rebound in
Europe's largest economy.
Prospects for Germany's economy have improved ``noticeably'
and economic figures demonstrate a pickup in growth has begun,
the ministry said.
The report ``gave (the euro) a boost,' said Alex Ignarra, a
trader at Fortis USA Financial Markets LLC. Expectations of
faster growth could spark speculation the European Central Bank
will raise interest rates in coming months. That could strengthen
the euro by raising the return of deposits in the currency.
Ten-year U.S. Treasuries yield about 84 basis points more
than similar maturity German government bonds, 35 basis points
narrower than the average gap so far this year. The slimmer that
spread, the less incentive investors have to favor U.S. dollar
deposits over euro-denominated ones.
BOJ Under Pressure
The yen fell for a fourth straight day against the dollar
amid speculation the Japanese government is increasing pressure
on the Bank of Japan to expand money supply in an effort to
weaken its currency.
The yen earlier sank near a one-week low after a spokesman
for Prime Minister Keizo Obuchi said the BOJ ``cannot be totally
independent' from the government.
His comments fanned speculation the central bank will agree
to boost the nation's money supply. Some analysts have said such
a step is a prerequisite for any coordinated international effort
to weaken the yen.
Intervention?
The declining yen ``tells you the market thinks they're
closer' to stemming the currency's gains, said Anne Parker
Mills, senior currency economist at Brown Brothers Harriman & Co.
The statement ``makes people think intervention is more likely.'
Yen strength is a concern for Japan as it hurts the nation's
exporters and threatens to stifle an apparent economic rebound.
Toyota Motor Corp. Chairman Hiroshi Okuda, when asked at a
news conference in New York today what he thought was the ideal
yen-dollar exchange rate, answered: ``From a viewpoint of
exporting companies in Japan, I'd say between 110 and 120, closer
to 120.' He added it was also important that the currency keep
in a stable range.
Japan's currency dropped to 106.94 per dollar, from 106.49
yesterday. It touched as low as 107.22 earlier and has fallen
about 3 percent since the weekend meeting of Group of Seven
finance officials, at which the yen's strength was discussed.
The comment by the Obuchi aide ``underlines the continued
pressure being exerted on the Bank of Japan to adopt a monetary
policy easing,' said Derek Halpenny, a currency economist at
Bank of Tokyo-Mitsubishi Ltd. in London. ``It's becoming clear
that the pressure may bear fruit.' He sees the yen falling as
low as 115 per dollar in the next three months.
`Running Smoothly'
The BOJ has given little evidence it is about to change its
stance on monetary policy.
The bank hasn't increased the money supply surplus it leaves
through its daily money market operations. And BOJ Governor
Masaru Hayami, speaking in Washington yesterday, said he thinks
``the markets are running quite smoothly,' while declining
comment on the yen-dollar rate.
The yen could resume its gains if the bank doesn't change
policy, analysts and traders said.
Signs of an economic rebound in Japan have encouraged
investors to buy the nation's stocks. Further signs of growth
could prompt more yen purchases. The yen is still up about 13
percent against the dollar the past four months, and foreign
investors have been net buyers of Japanese stocks for 33 of the
past 35 weeks.
International investors ``have bought yen to get back into
the market and domestic investors have had a long hard look at
their economy and seen it's not too bad,' said Alan Yau, a
portfolio manager at Fiduciary Trust International Ltd., which
oversees assets worth more than $6 billion in London. Attempts to
drive down the yen by Japanese officials will be ``offset by
positive growth figures,' he said.
He expects the yen to trade between 102 and 109 per dollar
in the coming weeks, and then strengthen to 100.
A report today showing industrial output rose 4.6 percent in
August, the biggest monthly increase in 42 years, lent more
weight to the view Japan is on the mend.
Tankan
A more significant landmark comes Monday, when the BOJ
releases its widely watched quarterly `tankan' survey of business
sentiment. The survey's index for large manufacturers will
probably come in at its highest in 21 months, according to a
Bloomberg News survey.
``If you get a strong tankan on Monday, you've got a risk
the yen will start to strengthen again,' said Lon Dolan, a
trader at Royal Bank of Scotland.
In other trading, the dollar rose against the British pound
and the Canadian dollar, yet fell against the Swiss franc.
The pound fell to $1.6444 from $1.6485 yesterday. The U.S.
dollar rose to 1.4655 Canadian dollars from 1.4613, and fell to
1.5031 Swiss francs from 1.5217.
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