LONDON (AFX) - The dollar held a firm tone against the yen in early trading after hitting a new 17-month high overnight in the wake of comments by U.S. Treasury Secretary nominee Paul O'Neill.
At Wednesday's confirmation, O'Neill fully endorsed the U.S. government's long-standing strong dollar policy. In addition, analysts said negative sentiment continued to weigh the yen.
"There are still big problems facing Japanese firms. The picture in Japan still looks worrying," said Mark Henry, currency analyst at GNI. In Asian trading, the dollar rose as high as 119.90 yen, just below the key psychological 120.00 yen level. Henry said if dollar/yen were to break above 120.00, numerous options barriers would be taken out, opening the floodgates for a significant move higher.
Dollar/yen's upward momentum occurred despite the Nikkei index posting gains for the fifth consecutive session. Henry said the Nikkei's performance was only "mildly positive" as it was being influenced by other factors rather than positive domestic news.
Meanwhile, the euro was rangebound. Analysts said the single currency's upside was limited as all the bad news out of the U.S. has already been discounted.
No change in rates is expected at today's European Central Bank policy meeting, dealers said.
In the UK, sterling was taking its cues from euro/dollar, trading between 1.4780 to 1.4680 usd. Henry said sterling was supported at its lower levels, due to a positive UK economic outlook.
Just ahead are UK December retail sales. Retail sales are expected to have risen 0.4 pct from November and 4.5 pct year-on-year, according to analysts polled by AFX News.
Also scheduled Thursday are U.S. December housing starts.