By Hideyuki Sano
TOKYO, June 22 - The dollar briefly managed to rise to a fresh two-month peak on the yen on Friday but soon succumbed to profit-taking ahead of key resistance levels.
Speculative buying from a couple of U.S. banks buoyed the dollar to as high as 124.74 yen in early morning trade, only for it to peel off to 124.18 as sellers defended a host of option positions from 124.75 to 125.00.
Japanese Finance Minister Masajuro Shiokawa also repeated his readiness to act if currency moves were dramatic. Traders took his comments as an admonition not to drive the yen too far too fast. "Japanese authorities seem to want to keep the dollar in the 120-125 yen range. So there is a psychological resistance to the 125 yen level," said Toshio Sugita, manager at Nissho Iwai Corp. The dollar stood at 124.37/47 yen as of 0554 GMT.
Some market players see the dollar stabilising in the 120-125 yen range, where it has spent most of the past three months. That mind-set encouraged Japanese exporters to sell the dollar near 125 yen in the morning, dealers added.
But others are still bullish on the dollar in the face of Japan's shaky economic outlook. On Thursday, Prime Minister Junichiro Koizumi took his first major step on the painful path of reform, issuing a wide-ranging policy document that was generally well-received by the market.
But even the government admits that the economy will likely get worse before its gets better, with Economics Minister Heizo Takenaka predicting gross domestic product growth of no more than zero to one percent for the next two to three years.
CONVERGENCE OR DIVERGENCE?
The euro, meanwhile, was keeping a low profile at $0.8534 , barely changed from New York levels. But it faces a nerve-wracking test later in the form of the German Ifo business climate survey for May. A Reuters survey found analysts expected yet another decline in the index to 91.7 from 92.5 in April, which itself was near a two-year low.
Even a result in line with analysts' forecasts would mark the fourth straight month of decline and underline the euro zone's dilemma of slowing growth but high inflation. It was concerns over rising prices that stopped the European Central Bank from delivering a much-needed policy easing at its meeting on Thursday, though it did hold out the hope that inflation had finally peaked.
On the other hand, the sterling has maintained the big gains it piled up in U.S. trade on Thursday, quoted at $1.4154/59, up from $1.3990 early Thursday, so recovering almost all the losses suffered after the victory of the Labour Party in the British election. Many had sold the pound in recent weeks on the assumption that the victory of the ruling Labour would see an early entry into the single currency, and at a much lower forex level.
But cautious comments from Chancellor of the Exchequer Gordon Brown and Bank of England Governor Eddie George had finally disabused them of that idea, forcing massive short-covering.
That also sent the euro reeling to 60.30 pence from 61.20 this time Thursday with traders reporting huge sales from one Dutch bank.