TOKYO, Jan 19 - The dollar kept most of its gains against major rivals on Monday on data showing steady capital inflows to U.S. assets and as the market speculated on the outcome of the upcoming Group of Seven (G7) meeting. The dollar was steady against the euro around $1.2390 after notching its biggest one-day rise in five months on Friday, when it climbed to $1.2350 -- a level not seen in a month. 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 mean 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." Dealers said it was too early to say that the euro's uptrend had ended, but they were on alert for further warnings against the euro's strength from a meeting of euro-zone finance ministers at 1800 GMT. Among the latest remarks to come out of Europe, 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 was focused on how G7 policy-makers would react to the dollar's overall weakness when they meet 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.
PRESSURE ON YEN TO RISE
The dollar was hardly changed against the yen, trading around 106.65 yen versus 106.70 in late U.S. trade. Dealers said trading was thin due to the U.S. holiday in honour of Martin Luther King Jr., but the dollar/yen was weighed down by expectations that Japanese investors would sell the euro against the yen. "Some investors seem to have already started repatriating their overseas investments, so further upward pressure on the yen is likely to continue," said Tomoko Fujii, market and economic analysis director at Nikko Citigroup in Tokyo. Some major institutional investors said they took profits on euro-denominated bonds during the euro's rise to a record levels. "We have shifted a modest amount to euro bonds from dollar bonds," said Takeshi Furuichi, general manager at the finance and investment planning department of Nippon Life. He added that the amount was "tens of billions of yen" of the firm's two trillion yen ($18.7 billion) in foreign bond holdings. The euro stood around 132.40 yen , recovering from around 132 yen in late U.S. trade. Over the longer term, analysts said there were few factors set to push down the yen except Japan's yen-selling intervention, but they expect short-covering in dollar/yen positions in the near term. 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. Helping to support the yen was a rise in Japanese stock prices, with the benchmark Nikkei stock average <.N225> ending above 11,000 for the first time since late October.//