TOKYO, Jan 8 - The dollar won a reprieve on Thursday, rising against the euro on speculation the European Central Bank (ECB) chief might warn against the recent rapid rise of the single currency. The greenback was stuck near three-year lows versus the yen amid wariness about Japanese intervention, with few traders eager to challenge Japan's apparent determination to block the dollar's decline. Still, traders said a strong rebound in the dollar was unlikely as the market is deeply concerned about the yawning U.S. current account deficit and as benchmark U.S. interest rates are likely to stay at a 45-year-low in the near-term. As of 0305 GMT, the euro had slipped to around $1.2590 from 1.2631/37 in late U.S. trade. It was down more than two cents from a record high of 1.2813 on Tuesday. The euro also fell against the Japanese currency to 133.65 yen from 134.10. "There is a worry that (ECB President Jean-Claude) Trichet may say something like 'a rapid rise in the euro' or 'a rapid fall of the dollar is not desirable'," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. Trichet will hold a news conference at 1330 GMT after the ECB's monetary policy meeting. Most economists think the central bank will keep policy unchanged. But Yamashita also said that Trichet might not sound any warning, in which case the euro could resume its rally. Amid wariness over Japanese intervention, the dollar was locked around 106.20 yen , hardly changed from late U.S. trade and off the three-year low hit on Wednesday. The greenback suddenly fell below the closely watched 106 yen level on Wednesday to hit the low of 105.90 yen , before resurfacing almost instantly. There was confusion over why the blip occurred, with some dealers saying it was due to a glitch on the EBS trading system, but banks in Tokyo -- both foreign and domestic -- used 105.90 as the overnight low.
NO CHOICE ON INTERVENTION
Traders suspect the Bank of Japan (BOJ) was intervening around 106 yen during U.S. trade to prop up the dollar. Japanese authorities, seen desperate to keep the dollar away from the technically and psychologically important 105 yen level, spent around three trillion yen ($28.25 billion) in the first two days of this week on yen-selling intervention, a market source told on Wednesday. "That's an amazing amount," said a dealer at a British Bank. Japan spent a total 20 trillion yen throughout 2003 in trying to keep the yen in check. Traders expect Japan to keep stepping into the market. "They have no choice but to continue to intervene. But I don't think they are trying to protect a certain level, such as 106 yen, as some in the media are speculating," said Yoshiharu Yanagisawa, vice president at State Street Bank. "They are just conducting a smoothing operation. It's difficult to contain the yen's rise when global capital is moving away from the U.S. to the rest of the world," he said. Many traders expect the dollar to fall despite Japan's intervention, given nagging worries about the health of the U.S. balance of payments. On Wednesday, the International Monetary Fund (IMF) said growing U.S. deficits raised the risk of an abrupt drop in the value of the dollar, which could hit U.S. and global economic growth. The IMF said it was a risk that "cannot be ignored". "I think the market will test a break under 100 yen by the end of March," said Yoshiyasu Naruse, head of corporate foreign exchange sales at HSBC Ltd. A median forecast of 49 analysts polled by saw the dollar holding steady at 106 yen in the coming month but slipping to 105 in three months, 104 in six and 102 by the end of the year.///