LONDON, March 21 - The dollar held a firm footing against other major currencies on Friday as U.S. and British armoured forces thrust deep into southern Iraq after launching an intense artillery barrage. But the dollar's inability to break above this week's two-month high against the euro and one-month high against the yen suggested the market was not yet convinced that a war would be short and without complications. The overall mood was one of "wait and see", with traders anxious to gauge the extend of damage to Iraqi oil wells and to see if Iraqi forces had any surprises in store, such as a counter assault. "The fact there have been no major shocks means the dollar has remained firm, but the market wants to gauge the length of the war," said Mitul Kotecha, global head of currency research at Credit Agricole Indosuez.
"The fact that some good news had already been priced in means people are reluctant to extend the dollar's rally at this point." The dollar stood a 120.35 yen and $1.0605 per euro in early European trade, a touch firmer than the previous New York close. The U.S. currency has risen four percent rise against the euro and three percent against the yen in the past 10 days.
ASIAN DOLLAR SUPPORT
Strong dollar buying by Asian central banks, anxious to keep their currencies competitive at a time of weak export demand, and the constant threat of intervention by Japanese authorities are seen as strong positive factors for the U.S. dollar. Analysts said Asian central banks, especially the Bank of Japan, have had a major role in rise of the dollar from early March lows around 116.35 yen. "I firmly believe that some of this (dollar) correction was engineered by the Bank of Japan," said Karl Broecker, head of treasury at Landesbank Wuerttemberg in Singapore. Naomi Fink, currency strategist at UBS Warburg said some $11 billion worth of U.S. Treasuries have been bought by foreign central banks since early March. Federal Reserve's statistics show foreign central banks bought around $30 billion of Treasuries since mid-February.
Analysts also believe the new BOJ Governor Toshihiko Fukui, who started his new job on Thursday, was likely to pursue an even more expansionary monetary policy than his predecessor. That could include targeting a weaker yen to boost Japan's exports, and raise import prices to help fight deflation. European Union finance ministers and European Central Bank governor Wim Duisenberg said late on Thursday they stood ready to act as necessary in response to the war in Iraq. Analysts said this suggested a similar scenario to that following September 11 when central banks around the world intervened to put a floor under the U.S. dollar.//