TOKYO (AFX-ASIA) - The euro was top-heavy in midafternoon trading due to receding concerns over any immediate intervention by the European Central Bank, dealers said.
The European currency rallied in overseas markets overnight, recouping recent losses, on talk of intervention by the bank. However, active buying attributed to the central bank later appeared to have come from private sector funds, dealers said. North Pacific Bank foreign exchange manager Toshikazu Shimamura said the market will, anyway, remain alert to the possibility of intervention.
Bundesbank president Ernst Welteke said last night that the euro exchange rate must be observed "very carefully" for possible dangers on price stability.
"But, there is no lead to see a sustained rebound in the euro from present levels," Shimamura said.
The euro also turned top-heavy against sterling due to receding fears that the UK's Labour Party will seek immediate participation in the euro, dealers said.
"While we probably need to keep a close eye on remarks from the UK authorities, they are unlikely to suggest an immediate entry into the single currency," Shimamura said.
"Therefore, it is too premature for us to try for convergence." The dollar, meanwhile, continued to gain ground against the yen due to confirmation of strong downside support below the 120 yen level, which continued to trigger short-covering among offshore investors, dealers said.
"Talk of a possible downgrade of Japan's sovereign debt rating also had some impact, although its magnitude was very minor, which you can tell from the solid performance of the JGB market," Shimamura said. The yield of the benchmark No 231 bond issue stood at 1.190 pct, compared with yesterday's closing level of 1.200 pct.
North Pacific's Shimamura said the market will continue to focus on the technical factors that saw the dollar stage an unexpected slide to below the 118 yen level a few weeks ago.
"If the dollar is able to rally through the mid-122 yen level, it may spike up towards 125 yen," he added.