8 October 2001, 15:27  Forex - Dollar pressured in midday trade as safe haven Swiss franc spikes up

LONDON (AFX) - The dollar remained under some pressure in quiet midday trade as investors moved funds to safe haven plays, such as the Swiss franc, in light of the overnight military attacks on Afghanistan, dealers said. Generally, currency strategists said the response to the military strikes was in line with expectations, but uncertainties remain, especially regarding the unity of the Allied coalition, which could increase intra-day volatility. "There is some downward pressure on the dollar and some classic safe haven trades but volumes are very weak," said Russell Jones, head of global forex research at Lehman Brothers. Jones said the markets are "very tentative" and any event may spark a little bit of volatility. Today's apparent accident at Milan Airport, which killed dozens of people, was a case in point, contributing to an early spike-up in euro/dollar. "Unless, there's a big political development, the major currencies are likely to remain rangebound but don't underestimate this spinning out of control," said Jones. The major political event, he said, is whether there are stresses and strains in the coalition and in Pakistan. Michael Klawitter, a strategist at WestLB, said risk aversion in the markets, "may even decline as long as military action remains limited and the rifts between the members of the US alliance do not increase." With New York closed this afternoon because of Colombus Day in the US, dealers said business was likely to be light in the hours ahead. However, the dollar's losses against the yen have been limited by talk that the Bank of Japan may intervene once again to stall the yen's export-sapping appreciation, especially after the weekend's G7 meeting of finance ministers and central bankers in Washington. Some investors had built up long dollar positions ahead of the meeting in the hope there would be some discussion of cooperation on weakening the yen. In the event, the issue of further monetary easing by the BoJ was not discussed. "It's been a disappointment for yen bears," said Neil MacKinnon, senior currency strategist at Merrill Lynch. Three weeks ago, the BoJ began intervening when dollar/yen stood at 118 and stopped some 10 days later when it hit 119.5. It even brought in the European Central Bank to assist on a couple of occasions. "Clearly the BoJ can't afford the yen to continue to appreciate," said Jones. "If they don't they'll have a big problem on their hands."

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