TOKYO, April 16 - The euro muscled up to a two-month high against the yen on Wednesday amid solid demand for euro-denominated bonds from Japanese investors unhappy with domestic interest rates at record lows. The dollar also firmed on the yen, but was steady against the euro as dealers were reluctant to take new positions with the greenback sandwiched between strong U.S. corporate earnings and weak signals from Tuesday's economic indicators. "It's tough to find a clear trend with the dollar, but for now, investors are comfortable with selling the yen in the crosses, against the euro and others," said Hideaki Furumaya, head of the interbank desk at Trust and Custody Services Bank. At 0221 GMT, the euro was quoted at 129.92/97 yen after hitting a two-month high of 130.07 yen earlier in the morning. It was at 129.83/93 yen in late New York on Tuesday. The euro could spike up should it break through 130.15-130.20 yen, where a large number of knockout option orders are rumoured to be lined up, dealers said.
The dollar stood at 120.42/47 yen against the late New York level of 120.14. The single currency was little changed at $1.0786/91 compared with $1.0799. Japanese investors, who have held ample funds since the start of the new fiscal year on April 1, were scrambling for high-yielding currencies to gain higher returns. Japanese institutional and retail investors have also been flocking into Australian and Canadian dollar bonds. Speculation that more Japanese-targeted Canadian dollar-denominated bonds would be offered in the near term following Tuesday's rate interest hike by the Bank of Canada kept the currency solid against the yen, dealers said. The central bank raised its key overnight lending rate to 3.25 percent from 3.0 percent. That compares with the U.S. federal funds rate at a four-decade low of 1.25 percent and the European Central Bank's benchmark interest rate at 2.50 percent.
The Canadian dollar was at 83.14/24 yen -- around a one-year high -- compared with around 80 yen at the start of the month.
U.S. FUNDAMENTALS EYED
The greenback is likely to be supported after encouraging earnings reports from Microsoft Corp and Intel Corp , dealers said. But traders were having trouble determining where the U.S. economy is headed, given a mixed bag of indicators. On Tuesday, data showed that U.S. industrial production fell 0.5 percent in March after a 0.1 percent fall in February. Economists had expected a decline of 0.2 percent. Capacity utilisation slipped to 74.8 in March from 75.3 percent in February. On the other hand, last Friday's U.S. retail sales and consumer sentiment figures were strong, which helped the dollar, dealers said. "Good corporate earning results and some healthy U.S. data were helping the dollar, but we are not too convinced about buying it aggressively," said Trust and Custody's Furumaya. "It's hard to determine the trend of the U.S. economy from recent economic data, but the market wants to know whether consumer spending is strong or not after the Iraq war settled down."//