16 August 2001, 12:24  Forex - Euro continues upwards in early London trade on dollar weakness

LONDON (AFX) - The euro gained strength against the dollar in early trade from afternoon Tokyo levels, as sentiment for the US currency continued to weaken, dealers said. "It is still a US story. (US Treasury secretary Paul) O'Neil reiterated that US dollar policy remained unchanged but failed to mention the magic word 'strong' which led many to interpret that as a loosening of policy," Jeremy Hawkins, chief economist Europe at Bank of America, said. He said focus this afternoon would be on US housing starts data. "Housing has been the most robust part of the US economy so if it starts to weaken it will be negative for the dollar," Hawkins said. Michael Klawitter, a currency strategist at West LB, said: "Given the massive exposure foreign investors have to US assets (not only corporate bonds), there is the clear risk that the current correction in the dollar turns into a downward trend." "Capital repatriation pushed dollar-yen to the 119 level and triggered the expected response from the Ministry of Finance with vice finance minister Kuroda saying that 'Japan stands ready to take appropriate action'. We keep the view that the downside in dollar-yen remains limited. Nevertheless, with the Nikkei trading close to its 16-year low, Japanese investors may continue to repatriate capital as they expect the government to stabilise the equity market to limit further pressure on the financial system," he added. Hawkins said everything in the yen is just a reflection of the weak dollar. "I cannot believe that given Japan's problems that people would want to buy yen, which provides proof of the weak dollar," he said. Sterling was slightly stronger tracking the euro ahead of UK retail sales data later this morning, dealers said.

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