23 July 2004, 12:13  Dollar near highs but lacks new impetus

The dollar held near recent peaks against the euro and yen on Friday, remaining buoyant after the U.S. Federal Reserve chief gave an upbeat assessment of the economy this week but lacked impetus for fresh gains. Little has emerged to give new direction to the dollar since Alan Greenspan, in Congressional testimony, reinforced expectations of gradual rate rises by saying U.S. growth was on a solid footing and inflation was not a threat. This worked against a market that had been inclined to sell the dollar at the start of this week, following a soft spell for U.S. data, and caused a clear-out of these positions. "The market at the moment is reluctant to hold onto positions when the momentum goes the other way. That leaves us in a situation where longer-term players are reluctant to put on new bets right now in the absence of fresh material new information," said Shahab Jalinoos, currency strategist at ABN AMRO. "Greenspan said things that worked against the themes the market was trying to grab onto -- as in fresh reasons to sell the dollar."
By 0747 GMT, the dollar traded at $1.2220 per euro , up a quarter percent from late New York levels. Earlier this week, the dollar hit its highest in over two weeks when it strengthened to $1.2208. The greenback also traded slightly higher on the day at 109.97 yen , compared to the 5-1/2 week peak of 110.31 it hit earlier this week. The yen was weighed down by a fall in Tokyo stocks and a surprise fall in Japan's tertiary sector activity index, which gauges conditions in the sevices sector. Preliminary inflation data from several German states is due on Friday. European Central Bank Governing Council member and Bundesbank President Axel Weber speaks at 1130 GMT. Federal Reserve Bank of Chicago President Michael Moskow speaks at 1300 GMT.
RATES WATCH
The single European currency is more than two cents below a four-month high set on Monday, before Greenspan's bullish economic outlook on Tuesday and Wednesday triggered a dollar rally. As long as rising interest rates remains the underlying scenario, analysts say this should give some support to the dollar since it increases the attractiveness of U.S. assets for foreign investors and makes it more expensive to bet against the greenback. "It's clear that interest rates are on the rise in the United States, so the dollar is bound to be bought back eventually," said Yukihiro Shimoyamada, a forex trader at UFJ Bank. Takashi Toyahara, forex manager at Nomura Securities, expected the dollar to stay between 108 and 110 yen, and $1.22 and $1.24 per euro ahead of U.S. jobs data due early next month, which will provide further clues about the pace of future rate rises. Heavy offers from Japanese exporters are likely to cap the dollar's advance beyond 110 yen, where banks are also looking to unload dollar-long positions, Tokyo traders said.
JAPAN STOCKS WEIGH
Meanwhile The yen found it difficult to rise as Japanese stock prices fell. Tokyo's benchmark Nikkei stock average <.N225> ended trade down 0.87 percent as bank stocks fell on uncertainty over the fate of big struggling borrowers of troubled UFJ Bank, Japan's fourth-biggest lender. "The yen's attractiveness may be weakened as long as uncertainty remains over the fate of troubled borrowers," Shimoyamada said. Meanwhile, Finance Ministry data showed that foreigners were net investors in Japanese stocks in the week ended July 16, snapping up 161.9 billion yen ($1.48 billion), while Japanese investors sold 163.2 billion yen in foreign bonds.///

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