16 January 2004, 10:21  Dollar eases, doubts remain about recent rebound

TOKYO, Jan 16 - The dollar eased on Friday, trimming gains made a day earlier on upbeat U.S. data, as the market remained unconvinced about its rebound this week from life lows against the euro and three-year lows against the yen. Although the dollar was confined to relatively narrow ranges, it remained particularly damp against the yen, despite lingering wariness of yen-selling Japanese authorities, on views that European officials' growing frustration about the euro's rise could be directed not only at Washington but at Tokyo. "Although the dollar has retraced losses against the euro, sterling, Australian dollar and everything else, it hasn't bounced against the yen," said Masamichi Koike, head of spot forex trading at Sumitomo Mitsui Bank. "For one thing, the decline in recent months against the yen had been relatively small because of intervention. In addition, there is concern that such intervention could come under criticism at the upcoming G7 meeting." With the euro up 20 percent over the last year, currencies will likely be a major topic when policymakers from the Group of Seven industrial countries meet in Florida on February 6-7.
Koike said some market-watchers suspected that European officials could complain about Japan's record-breaking intervention over the past year, asking Japan to shoulder more burden of correcting the gaping U.S. current account deficit, which is seen at the heart of the dollar's broad-based weakness. The euro stood at $1.2592/97 at 0635 GMT, up from around $1.2575 late on Thursday in New York but down sharply from Monday's record highs near $1.29. The dollar was also easier against the yen at around 106.10 , down a quarter yen from late Thursday and within a quarter yen of last week's three-year lows around 105.90.
Some analysts estimate that Japan has already conducted five trillion yen or so of yen-selling intervention this year, adding to a record 20 trillion yen ($188.2 billion) last year. Finance Minister Sadakazu Tanigaki reiterated Tokyo's stance that it would take decisive action in the currency market to counter any overshooting in exchange rates, keeping the market wary of pushing the dollar below 106 yen for now. "The 106 level is an area where people would have to be wary about intervention, and the market has bounced off that level several times," said Mitsuru Sahara, vice president of foreign exchange at UFJ Bank. With the U.S. Commodities and Futures Trading Commission's weekly report showing a high level of short dollar positions in the Chicago futures market, Sahara said intervention might have more effect on squeezing short dollar speculators now than it had in recent weeks. The market's focus was on comments by global monetary authorities, particularly European officials as they have become conspicuously louder this week about their concerns over the euro's rapid rise. Tension is rising ahead of the G7 meeting in Florida, with the sherpas -- deputy finance ministers -- from each country due to meet in Brussels on January 26 to work on the agenda. On Thursday, German Economy Minister Wolfgang Clement called for broad international support for a stable foreign exchange rate system, saying the euro's current level was just about tolerable but that a continued swift rise would pose problems for European economies. French Finance Minister Francis Mer chimed in, saying that the euro's volatility was a cause for concern.//

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