Dollar takes beating against the yen. The Script
US big bureaucracy is hard at work concocting a conflict with Iraq to make J6P take the eyes off the economic radar screen which is looking worse by the day.
Filled by patriotic fervor, they wouldn't dare accusing the economic leadership. It is working. A 911 here, a Iraq gunboating there and the Enron, WCM bosses may never see the jail from the inside. Neither investors will see their money again, mind you.
Dollar takes beating against the yen
By Christopher Swann
Published: July 11 2002 22:19 | Last Updated: July 11 2002 22:19
The dollar fell sharply against the yen on Thursday, with traders fearful that the Japanese authorities had given up their efforts to halt the fall in the dollar.
The dollar slid as far as ¥116.5, from around ¥117.8 at the start of Asian trading.
Analysts said Japanese investors were losing faith in the ability of the finance ministry to forestall a further rise in the yen. Japanese investors have been purchasing yen to protect the value of their income from overseas assets, said Marc Chandler, chief currency strategist at HSBC in New York. He added: "This has been adding to the strength of the yen."
The dollar had a bumpy ride against the euro. For most of the session the euro-dollar appeared disorientated by the wild fluctations in the US stock markets. But as US stocks moved clearly lower the dollar followed, reaching $0.994 against the euro.
Although the euro continues to flirt with parity, many think this may have to wait a week longer until after a rejig in the S&P 500 index which is expected to lead to dollar purchases.
The euro has been within striking distance of parity with the dollar for several weeks. Traders expect the euro's rise will accelerate after the euro breaks through the psychological parity level.
The reluctance of the euro to burst through parity may be frustrating, but it may be a blessing in disguise.
Goldman Sachs, the most dogged euro bull in the market, sees the recent restraint of traders in buying the euro as a sign that a long standing problem has been solved.
Many of the euro's previous attempts to recover were plagued by overenthusiasm among traders in the early stages of the rallies. The result was that everyone bought the currency on the slightest sign of recovery, leaving few marginal buyers to support a long term rally.
Having been burnt so many times in the past, traders have been reluctant to push the euro through parity. But this means there are many marginal buyers waiting in the wings.
"Professional investors are nervous about overstaying long positions," said Jim O'Neill, head of economics at Goldman Sachs. "It is a good thing the market is not getting carried away with the move and means that it is more likely to be durable."
Goldman Sachs' prediction is that the euro will pass through parity within the next three months and will reach $1.15 in 12 months.
This optimism is based partly on the belief that the outlook for other major economies outside the US is better than is generally assumed in the market.
"There are scattered signs of a pick up in consumer demand in Japan," said Mr O'Neill. "In addition, Japan is benefiting from strong demand for exports from South Korea and China."
In the eurozone, Goldman has been encouraged by indications the EU might adopt a more flexible approach to the stability and growth pact, which imposes fiscal discipline on eurozone states.
"A more flexible approach to fiscal policy may allow the eurozone to shift demand from exports to consumption, which would be positive for the euro," said Mr O'Neill.
While the euro-dollar parity level continues to draw attention, analysts are seeking to broaden their focus to other currency crosses.
Alan Ruskin, director of research at the economic consultancy 4Cast, said that the main issue was whether the dollar remained under pressure across the board.
"Throughout the dollar's fall different currencies have taken on the baton in terms of leading the assault on the US currency," he said. "First it was the Swiss franc and the Australian dollar back in March, with the euro taking over in May and June, and recently sterling has been catching up."
The most likely currency to take over the baton in the short term, he said, was the yen.
The fact that the dollar has been allowed to fall below ¥117 without provoking intervention has cast further doubt on the resolve of the Japanese authorities. Official rhetoric in recent weeks has suggested that the Ministry of Finance has becomed disheartened by its failure to halt the fall in the dollar against the yen. |
