LONDON, Jan 19 - The dollar kept a grip on recent gains against the euro and yen, supported by caution ahead of a euro zone finance ministers' meeting later on Monday after European policymakers talked it off record lows last week. The dollar staged its biggest one-day rise against the euro in five months on Friday, aided by data showing net foreign purchases of U.S. assets tripled to $87.6 billion in November from the previous month and by protests from euro zone policymakers about the pace of the euro's recent rise. With the market now waiting to see what Group of Seven Finance Ministers will say about the dollar's two-year decline when they meet in early February, any comments from euro zone politicians at Monday's meeting will be watched. "There's caution ahead of the Eurogroup finance ministers' meeting," said Ryan Shea, senior international economist at Bank One in London. "Last week the comments from European officials were one of the triggers for this renaissance in the dollar and it seems likely that they will continue to reiterate that they would be opposed to a considerably stronger euro exchange rate."
By 0845 GMT the dollar was steady on the day $1.2375 per euro after gaining two cents on Friday. It hit an all-time low of $1.2898 last Monday but rapidly rebounded after European Central Bank officials began expressing their concern. It was a quarter percent higher on the day at 106.91 yen , holding more than one yen up from a recent three-year low, with the market ever-wary of official Japanese yen-selling intervention. The dollar was also staging a strong rebound against the Australian and New Zealand dollars and was firm against sterling and the Swiss franc.
PRESSURE ON YEN TO RISE
In Tokyo, dealers said trading was thin due to the U.S. holiday in honour of Martin Luther King Jr, but 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. The euro stood around 132.30 yen after dipping to a one-month low of 131.60 on Friday.
Over the longer term, analysts said there were few factors to push down the yen except yen-selling intervention from the Bank of Japan but they expected 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 ending 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.
PRE-G7 VIGIL
Dealers said it was too early to say the euro's uptrend had ended but Friday's U.S. inflows data had given pause for thought. "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. Analysts noted that with little in the way of major U.S. data out this week, attention would focus on Tuesday's full Ecofin meeting of European finance ministers, along with a European parliamentary testimony of ECB chief economist Otmar Issing, and a World Economic Forum starting in Davos on Wednesday.//