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To: Haim R. Branisteanu who wrote (22478)	11/26/2004 5:47:07 AM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 110194

Dollar Gains; China's Yu Denies Knowledge of Action on Reserves Nov. 26 (Bloomberg) -- The dollar gained against the euro and the yen after Yu Yongding, a Chinese central bank official, denied knowledge of changes to his country's currency reserves. The U.S. currency earlier today fell to a record low against the euro after China Business News reported Yu said China had cut its U.S. Treasury securities holdings. Yu, a central bank monetary policy committee member, expressed ``deep regrets'' over the report, in a statement on the Institute of World Economics and Policies of the Chinese Academy of Social Sciences Web site. ``The denial from the China story was the initial trigger for this move'' higher in the dollar, said Mitul Kotecha, global head of currency research in London at Calyon, the investment banking unit of Credit Agricole SA. ``There was a feeling that we've moved a bit too far'' on the dollar. Against the euro, the dollar rose to $1.3218 at 10:23 a.m. in London, from $1.3269 late yesterday, according to electronic currency-dealing system EBS. It earlier reached a record-low $1.3330. The U.S. currency was also at 103.19 yen, from 102.46, after dropping as low as 102.01, the weakest since January 2000. The U.S. currency was poised to gain, based on a technical indicator some traders use to gauge likely trends. The dollar's 14-day relative strength index against the euro closed at 80.2 yesterday. Against the yen, it closed at 24.3. Levels above 70 and below 30 suggest a currency may change direction. The index shows how rapidly prices have risen or fallen in a given period. ``When I woke up this morning and saw on my pager $1.3315 I was thinking to myself maybe people could be looking to lock up some profits today'' on the euro, said Naeem Wahid, a currency strategist at HBOS Plc in London. Wahid's team manages a $60 million currency fund and predicts the euro at $1.33 at year-end. China Holdings The dollar is still headed for a weekly drop against the euro amid concern the U.S. current account deficit will undermine demand for the currency and policy makers will refrain from stemming its slide. Merrill Lynch & Co., Deutsche Bank AG and UBS AG were among banks cutting their dollar forecasts this week. China is the second-largest foreign holder of U.S. notes. The country's central bank initially declined to comment on the report that it had reduced its holdings. The China Business News report came three days after Russia's central bank said it may cut the share of dollars held in its currency reserves. China reduced its U.S. Treasury note holdings to $180 billion, China Business News said. Yu said in his statement that ``I know nothing about the details of the foreign reserves.'' According to figures from the U.S. Treasury Department, China held $174.4 billion of U.S. notes and bonds at the end of September, 19 percent more than a year earlier. Japan has the most Treasuries, with $720.4 billion as of the end of September, according to the Treasury. Lowest Since 1995 ``Any indication that foreign-exchange reserves will be cut is worrying'' for the dollar, said Tania Kotsos, a currency strategist at RBC Capital Markets in London. ``The market has gone a little bit carried away'' with the dollar's slide, Kotsos said before Yu's statement of denial. The dollar has dropped to a record against the euro eight times since this month. The Dollar Index, which measures the dollar against a basket of six currencies, fell to 81.53 today, the lowest since 1995, according to data compiled by Bloomberg. The New York Board of Trade's index averages exchange rates between the dollar and six other currencies, with the euro accounting for 58 percent. ``It looks like our first-quarter forecasts are going to materialize quicker than we'd expected'' for the dollar, said Kotsos at RBC. The bank predicts the dollar to drop to $1.35 per euro and to 100 yen by the end of March. `Real Risk' Britain's currency climbed as high as $1.9037 today, within 1.5 cents of its strongest in 12 years, after Bank of England Chief Economist Charles Bean said international investors are unlikely to keep buying U.S. assets indefinitely, resulting in a ``possibly substantial'' drop in the dollar. Bean's comments echoed those of Federal Reserve Chairman Alan Greenspan, who said in Frankfurt on Nov. 19 that overseas investors may tire of financing the U.S. current-account gap. ``A diminished appetite for adding to dollar balances must occur at some point,'' he said. The deficit in the U.S. current account, the broadest measure of trade, was a record $166.2 billion in the second quarter. A wider deficit means more dollars need to be converted into other currencies to pay for imports. ``The real risk is that the sharper and the quicker the dollar falls that these investors pull out pretty quickly from U.S. markets,'' said Kotecha at Calyon. ``There hasn't really been signs of that recently but the risk must rise as the dollar falls and as the pace of this fall intensifies.'' To contact the reporter on this story: Rodrigo Davies at rdavies13@bloomberg.net. To contact the editor responsible for the story: Daniel Moss at dmoss@bloomberg.net. Last Updated: November 26, 2004 05:25 EST