28 January 2003, 10:32  Dollar Rises vs Euro on Expectations Snow to Back U.S. Currency

Tokyo, Jan. 28 (Bloomberg) -- The dollar rose against the euro, snapping a record 10-day slide, on expectations the U.S. will endorse its preference for a strong dollar, while officials in Europe and Japan speak out against gains in their currencies. Treasury secretary nominee John Snow, chosen by President George W. Bush last month, is expected to reiterate at his Senate hearing the position held by Treasury chiefs since 1995, supporting a currency that draws foreign investors and creates stability for Federal Reserve policy makers, analysts said. The dollar rose to $1.0823 per euro at 3:52 p.m. in Tokyo from $1.0853 late yesterday in New York, climbing against its European counterpart for the first day in 11. It also was at 118.59 yen from 118.56 yen, after having its biggest rise in almost three weeks yesterday. ``Snow is going to say it is in the interest of the U.S. to have a strong dollar, and that's making it easier to buy the currency,'' said Tatsuro Karitani, vice president of foreign exchange at Mizuho Corporate Bank. The dollar may rise to $1.08 against the euro and 119 yen today, he said.
Snow's testimony comes as Zembei Mizoguchi, Japan's vice finance minister for international affairs, welcomed yesterday's dollar rise, calling it ``not surprising.'' The yen may fall against the dollar after Finance Minister Masajuro Shiokawa said in parliament that ``it's favorable to see the foreign exchange rate reflect'' the power of Japan's economy ``as much as possible.'' He said last month the yen should trade between 150 to 160 to the dollar, given current economic conditions.
Bank of Japan
The possibility the Bank of Japan may sell the yen to stem a gain of more than 4 percent in the past three months can happen ``at any time, at any level, at this moment,'' Satoru Ogasawara, Tokyo-based currency strategist at Credit Suisse First Boston, told Bloomberg Television. A further appreciation of the yen ``would be negative for the Japanese economy.'' European Central Bank council member Ernst Welteke said two days ago he opposes a further ``rapid'' rise of the euro against the dollar. Swiss National Bank Vice-President Bruno Gehrig yesterday said in a speech the central bank will act ``decisively'' to counter a surge in the franc. The euro has risen more than 10 percent against the dollar in the past three months, the franc almost 10 percent. Gains in the dollar may be limited after the United Nation's chief weapons inspector yesterday said Iraq hasn't accepted a UN mandate to disarm. U.S. Secretary of State Colin Powell said ``Iraq continues to defy the will of the UN,'' signaling the U.S. is prepared to go to war with Iraqi leader Saddam Hussein.
Iraq
The comments helped send the dollar as low as $1.0905 yesterday, its weakest since October 1999, on concern a war will hinder an economic recovery at a time when stocks are falling. A report today will probably show U.S. consumer confidence fell to a nine-year low this month, indicating household spending is languishing. Confidence as measured by the Conference Board probably dropped to 78.3 in January from 80.3 the previous month, based on the median of 59 forecasts in a Bloomberg News survey of economists. The Dow Jones Industrial Average fell below 8,000 for the first time since October, losing 1.7 percent. The Standard & Poor's 500 Index shed 1.6 percent. ``The prospect of war and falling stocks makes it very hard to buy the dollar while the economy isn't doing very well,'' said Noriaki Kubo, a foreign exchange manager at Daiwa Bank. Bush, who today will give his State of the Union speech, hasn't set a timetable for deciding whether to attack Iraq, his spokesman Ari Fleischer told reporters at the White House. The yen's fall may be limited after Bank of Japan Governor Masaru Hayami said he was opposed to selling the currency. Hayami vs MOF
``If Japan starts selling the yen in its effort to weaken the currency, that will be seen as Japan starting to sell its own nation,'' Hayami said in parliament. ``When there is a problem in the currency, people will see it as a sign that Japan is collapsing.'' However, currency policy is determined by the Ministry of Finance, with the Bank of Japan buying or selling at its behest. Analysts also pointed out that Hayami will be replaced soon as governor of the central bank. ``There is no such thing as BOJ'' selling the yen, said Marshall Gittler, currency strategist in Tokyo at Deutsche Bank AG, the third-largest trader in the $1.2 trillion-a-day currency market. ``There is only MOF action, carried out on its behalf by the BOJ. Hayami's comments are totally irrelevant to Japanese foreign exchange policy.'' The last time the Bank of Japan sold yen was on June 28, when the dollar traded between 118.40 yen and 120.26 yen. Japan sold more than $30 billion of yen in seven days last year to stop an advance in the currency. In other currencies, the yen was at 128.45 against the euro, from 128.62 late yesterday in New York. The dollar was at 1.3559 Swiss francs, from 1.3530 francs. The British pound was at $1.6336, from $1.6368//www./quote.bloomberg.com

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