London, Jan. 20 (Bloomberg) -- The dollar gained against the yen for a second day after U.S. officials gave support to an effort to push Iraqi leader Saddam Hussein into exile. The U.S. currency rose to 118.16 yen at 10:30 a.m. in London, from 117.83 late Friday in New York. The dollar strengthened to $1.0656 per euro, from $1.0673. Trading may be lighter than usual because of a U.S. holiday, analysts said. U.S. Defense Secretary Donald Rumsfeld and Secretary of State Colin Powell said yesterday that they supported attempts by Saudi Arabia and other Arab countries to push Hussein into exile, easing concern about a possible war that may hurt the U.S. economy. Rumsfeld suggested on ABC's ``This Week'' television show that Hussein may be given immunity from war-crimes charges if he left. ``It's understandable that you'd see some relief for the dollar,'' said Stewart Cowley, who manages $29 billion in bonds and currencies for Mellon Newton Investment Management. ``There is a war risk priced into the dollar, and as tension has stepped up the currency has weakened.'' The prospect of the U.S. leading a war has helped push the dollar down 5.5 percent against the yen and 8.8 percent against Europe's common currency in the past three months.
Reports of a Saudi plan aimed at heading off a conflict by encouraging Hussein's removal, perhaps through a UN resolution giving amnesty to senior Iraqi officials who assist in his ouster, have circulated in recent days, the New York Times reported. At the same time, ``there is a low probability that Hussein will accept'' such an offer, said Steve Pearson, chief currency strategist at HBOS Plc. He said the dollar may weaken to $1.08 per euro in a month.
Economy
A boost in demand for the U.S. currency may be limited by concern the world's biggest economy will struggle to attract the almost $1.4 billion in foreign investment it needs to offset its current-account deficit and sustain the dollar's value. U.S. consumer confidence unexpectedly declined this month, a report from the University of Michigan showed on Friday, while the country's economy lost 101,000 jobs in December. ``Economic fundamentals still aren't supportive for the dollar, and I'd be skeptical as to whether today's gain can be maintained for the week,'' said Adam Cole, an economist at Credit Agricole SA. Concern a U.S. economic rebound is faltering and the threat of war in Iraq will probably send the dollar to its seventh week of declines in eight against the major world currencies, the majority of 30 strategists surveyed by Bloomberg said on Friday.
`Ready to Act'
The dollar's gain against the yen may outpace any increase versus the euro amid speculation Japan will sell its currency to in a bid to boost the profit of the country's exporters. ``We are monitoring the market closely and are ready to act whenever needed,'' Zembei Mizoguchi, vice finance minister for international affairs said on Friday. The yen's gains erode the value of overseas earnings for exporters such as Honda Motor Co., Japan's No. 2 automaker, which generates about 80 percent of its operating profit in the U.S. ``Fear over whether the Bank of Japan will sell the yen is one thing supporting the dollar,'' said Takashi Nakata, head of spot proprietary trading at BNP Paribas in Tokyo. In other trading, the dollar rose to 1.3706 Swiss francs, from 1.3688 late Friday. The British pound fell to $1.6102, from $1.6126. The yen was at 125.96 per euro, compared with 125.76. //www.quote.bloomberg.com