By Masataka Nakamura
Tokyo, June 4 (BridgeNews) - U.S. dollar/yen and euro/dollar moved slightly higher Monday, helped by active short covering of euro/yen from short-term players. Pro-euro comments by European and Japanese officials helped underpinning the tone for the cross to some extent. However, dealers said that the overall movement was still a minor retracement after the recent relentless fall.
Early in Monday's session, dollar/yen and euro/yen fell, led by the selling from U.S. names. Euro/dollar lost ground, on euro/yen selling. Ministry of Finance International Bureau chief Haruhiko Kuroda said the euro does not reflect economic fundamentals, adding that euro was too weak against dollar and yen. Kuroda also mentioned the weakness of euro would be reversed sooner or later. However, Kuroda's anti-yen rhetoric had only a minor impact on the market, but still underpinned the tone of the euro, causing short covering pressures.
The overall move of the forex market was reversed at mid-morning, after the market met heavy euro/yen short covering pressures below the 101.00 area.
In the afternoon session, euro supportive comment by European Central Bank President Wim Duisenberg and Bank of England Governor Eddie George induced some short covering pressures of euro/yen. Japanese names were noted to be actively buying the euro/yen.
BOE George said he expects the euro to recover. ECB Duisenberg said that euro has strong potential to rise over time.
Later in the session, dollar/yen rose to a high of 119.58 Monday afternoon, as inter-bank traders tried to hit stops from the 119.50 area. Toward the closing, euro/yen short covering also helped underpinning the pair.
However, dealers mentioned that those movements were basically caused by short covering rather than creation of fresh euro/yen long positions. Jitsuo Tachibana, manager for financial products and marketing at Sumitomo Trust & Banking said that Monday's rise was rather a retracement after a relentless fall in the euro/yen last week. Tachibana also said that the market needs strong incentives for a real turnaround for the movement of the euro/yen
At International Monetary Conferernce, Federal Reserve Board Chairman Greenspan and Bank of Japan deputy Governor Yutaka Yamaguchi made the comments, but their comments failed to inspire the foreign exchange market.
U.S. Fed Chairman Alan Greenspan said Monday that he sees little evidence of emergence of U.S. inflation, adding that inflation is not a significant problem at the moment. Meanwhile, the Fed chairman also noted that higher producer costs have not yet been passed on to consumers. Greenspan also noted the impact of higher energy costs on U.S. inflation may be greater than thought.
Bank of Japan Deputy Governor Yutaka Yamaguchi said that there is greater uncertainty over the outlook for the Japanese economy, adding that greater deflationary pressures can not be ruled out. Yamaguchi also mentioned that h Japanese corporate profits may be deteriorating. Meanwhile, Yamaguchi also said that BOJ has a limited ability to achieve inflation goal.
Euro/dollar found some buying from good directional U.S. names out of Singapore in the 0.8470's and rose to a high of 0.8515. Stop loss buying at 0.8500, coupled with euro/yen short covering, also pushed the pair higher.
However, short-term specs were looking to take advantage of euro/dollar upticks to 0.8530, arguing that no intervention was likely. They felt that Friday's European and U.S. economic data was unlikely to change the bearish trend.
Cable traded in a range of 1.4181-1.4207.
Employment levels and business volumes are expected to decline in the U.K.'s consumer service sector, a survey by the Confederation of British Industry found. The May survey, published Monday, showed a net 19% of respondents in consumer services expected to cut employment in the next three months, up sharply from a net 3% in the previous survey in February. The net employment balance was the worst since the service sector survey began in 1998.