The euro reversed early losses to hit one-week highs against the dollar on Thursday, as upbeat euro zone manufacturing data removed lingering talk of a euro zone rate cut later in the day. The ECB releases its monthly policy decision at 1145 GMT. Foreign exchange dealers were last week betting on a rate cut after dovish comments by ECB President Jean-Claude Trichet, but 58 of 60 analysts polled by this week saw no change in current rates of 2.0 percent. The yen hovered near the previous day's four-year high against the dollar and four-month high against the euro after a survey showed Japanese businesses more upbeat than at any time in almost seven years. "The PMI fuelled a move higher in the euro and threw cold water on any expectations of the ECB cutting," said Jane Foley, currency strategist at Barclays Capital. "We had a very good tankan (Japanese business confidence survey) overnight which added to a move that had already taken place in the yen." The euro was trading at $1.2327/25 at 0949 GMT, steady from the U.S. close and just off an earlier high of $1.2338.
Comments by Trichet will be closely watched at the ECB's news conference at 1230 GMT, after he warned last week on sluggish consumer spending. "Very few people are expecting an ECB rate cut today but the press conference may reinforce expectations of a cut in May or June," said Jesper Dannesboe, chief foreign exchange strategist at Dresdner Kleinwort Wasserstein. The euro was down 0.30 percent against the broadly strong yen at 128.03 yen , compared with four-month lows set on Wednesday of 126.60. The dollar was down 0.40 percent against the yen at 103.84 yen , compared with four-year lows set on Wednesday of 103.38. The yen staged a stunning rally on Wednesday as investors sensed Japan was scaling back yen-selling intervention going into the new fiscal year.
EURO ZONE, JAPAN BUSINESS UP
The Eurozone Purchasing Managers Index, which measures business activity in manufacturing, rose to 53.3 last month from 52.5 in February, wrong-footing economists who predicted a fall to 52.3. That pushed the index to its highest level since December 2000 and kept it above the 50 line dividing growth from contraction for a seventh month. In the Bank of Japan's quarterly "tankan" survey, the main diffusion index for big manufacturers came in at plus 12, the highest since June 1997 and the fourth straight quarter of improvement. The survey also showed improved confidence among small firms and non-manufacturers, confirming the recovery is extending beyond exporters. Many dealers were also struck by the average dollar/yen rate that Japanese companies expected for the new financial year that began on Thursday. Large manufacturers forecast an average dollar rate of 108.43 yen in fiscal 2004/05, versus the current level below 104.00.
Japanese officials kept markets guessing about the extent of yen-selling intervention by Japanese authorities, after more than a year of heavy official action to curb potentially export-damaging yen strength. Vice Finance Minister Masakazu Hayashi repeated in European trading hours that Japan will continue intervening when exchange rates move out of line with fundamentals. Prime Minister Junichiro Koizumi said an excessively appreciating yen was undesirable given current conditions. Elsewhere, the Swedish crown strengthened against the euro after Sweden's central bank cut interest rates by 50 basis points to historic lows of 2.0 percent, matching euro zone rates, but said the easing cycle was coming to an end.///