29 January 2004, 09:17  Dollar seesaws, draws support from Fed statement

TOKYO, Jan 29 - The dollar seesawed against the euro on Thursday, drawing some support from the U.S. Federal Reserve's policy statement which suggested the central bank might be a step closer to raising interest rates. After falling to a session low of $1.2410 in early Tokyo trade, the euro moved up to a high of 1.2505 before settling at 1.2461/64 by 0614 GMT. It fetched 1.2480/85 in late U.S. trade on Wednesday. "Basically, I think it's range-bound," said Junya Tanase, foreign exchange strategist at JP Morgan Chase. "The dollar initially gained after the Fed but since any rate hike isn't likely to happen anytime soon, it fell back." The Fed decided on Wednesday to keep interest rates unchanged but dropped a phrase referring to a "considerable period" of loose monetary policy from its statement and replaced it to say that it would be "patient in removing its policy accommodation". The market was also cautious ahead of a February 6-7 meeting of the Group of Seven industrial countries. "The G7 meeting is still the biggest issue, but the Fed statement seems to suggest the United States is not totally unconcerned about inflation or a sharp drop in the dollar," said Toru Umemoto, currency strategist at Morgan Stanley in Tokyo. He said there might be a chance that Washington was warming to the idea of letting the communique at the G7 meeting reflect concerns in Europe and Japan about the dollar's big decline over the past several months. The dollar was steady against the yen, hovering at around 106.02/07 yen .
Traders said the U.S. currency was also supported by wariness of yen-selling intervention by Japanese authorities after a brief spike-up on Wednesday, which they said was most likely caused by intervention.
Traders said it was too early to say the dollar had bottomed out, given persistent worries about the ballooning U.S. current account deficit and geopolitical risks. "The Fed's statement surprised the market at a time when the focus has been on the G7 meeting," said Hideaki Furumaya, head of the corporate desk at Trust and Custody Services Bank. "But it's premature to become too bullish on the dollar as the market really doesn't expect the credit tightening to happen very soon," he said. Traders said Japanese institutions, such as life insurers, were eagerly looking for chances to lock in profits on their overseas investments whenever the yen softened. But the market was careful about buying the yen too aggressively amid wariness that Japan might step into the market to sell its currency, traders said. Japan's top financial diplomat, Zembei Mizoguchi, said on Thursday that stable currency markets over the medium term were desirable and that the authorities were closely monitoring the market. He had just returned from Brussels, where he met his counterpart sherpas from the G7 countries.//

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