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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