TOKYO, Jan 19 - The dollar kept most of its recent gains against major rivals on Monday on improved sentiment due to steady capital inflows to U.S. assets and as the market mulled what might emerge from the upcoming Group of Seven (G7) meeting. The dollar notched its biggest one-day rise versus the euro in five months on Friday, when it climbed as high as $1.2350 -- a level not seen in a month. By 0256 GMT, it was standing at $1.2370/75 per euro. Traders said the market took heart from data showing that net foreign purchases of U.S. assets tripled to $87.6 billion in November from the previous month. "Steady inflows to U.S. assets means less worries about the United States not being able to finance its massive current account deficit, which has been a major factor battering the dollar," said Junya Tanase, forex strategist at JP Morgan Chase. "That took some pressure off the dollar, especially as euro-zone officials have repeatedly voiced concerns about the euro's rapid rise versus the dollar." Among the latest remarks, European Central Bank Chief Economist Otmar Issing said on Friday that the ECB was not indifferent to the currency's strength.
After Issing, ECB council member Guy Quaden said a further rise in the euro was not desirable. Amid the recent barrage of coments from euro-zone officials, the market is focused on how G7 policy-makers will react to the overall dollar's weakness at their meeting in Florida on February 6-7. Views are divided, with many market participants believing that U.S. officials are satisfied with the dollar's weakness since it helps U.S. manufacturers. U.S. Treasury Secretary John Snow reiterating on Friday the Bush administration's strong dollar policy and that markets should set currency rates. Many dealers were focusing on a meeting of euro-zone finance ministers at 1800 GMT, with any comments on euro strength likely to be closely watched. But trading was expected to be thin due to the U.S. holiday in honour of Martin Luther King Jr.
PRESSURE ON YEN TO RISE
The dollar was a tad weaker against the yen, trading at 106.51/54 yen versus 106.63/71 in late U.S. trade. Although some traders said the dollar's rise against the yen could be capped on expected selling by Japanese exporters, dollar bulls said short-covering was likely, given the huge yen-long positions taken by speculators. Data from the Commodity Futures Trading Commission showed on Friday that yen futures speculators extended net long positions to 60,602 contracts in the week that ended on January 13 from 56,834 contracts a week earlier. But over the longer term, analysts said there would be few factors pushing down the yen except Japan's yen-selling intervention. "Japan's capital flows data show Japanese investors are still buying foreign bonds. But this has not lead to a higher yen as most of the purchases are fully hedged, and foreign investors keep buying Japanese stocks," said Tomoko Fujii, market and economic analysis director at Nikko Citigroup in Tokyo.//