22 July 2005, 18:09  Dollar recovers against yen; pound drops on terror threat

The dollar regained ground against the yen as yesterday's sharp falls in the wake of China's decision to revalue the yuan were seen as overdone for the time being. The dollar slumped to a low of 110.17 against the Japanese currency yesterday after the People's Bank of China announced a 2.1 pct revaluation of the yuan/dollar rate, but it has since recovered above the 111 level. "The size of the renminbi revaluation, and its assumed limited impact on trade, is perhaps unlikely to be seen as a hindrance to the dollar in the near term -- indeed, the dollar has already recovered its feet against the yen," said Neil Mellor, currency analyst at Bank of New York. Beyond the short term, however, the dollar could be pushed lower again as speculation grows over possible further moves by the PBOC, he said. CALYON analyst Mitul Kotecha also noted that fears over possible intervention by the Bank of Japan to prevent too much yen appreciation is also limiting gains in the Japanese currency. Elsewhere, the pound also dropped as worries over terrorism in London intensified after a suspected suicide bomber was shot by police as he boarded an underground train this morning. The news comes in the wake of four failed attempts to detonate bombs on London transport yesterday. "Sterling remains vulnerable to terrorism-related concerns in the UK, as yesterday's bombings in London have been followed today by the police shooting of a suspected suicide bomber at a subway station," said HSBC analyst Mark Austin. Weak second quarter GDP figures this morning, which showed the annual rate falling to 1.7 pct, its lowest since 1993, also contributed to the pound's weakness. "With UK GDP data showing growth still struggling, this should contribute to a softer tone in sterling ahead of the weekend," Austin said. The figures offset any optimism from yesterday's upbeat retail sales numbers and make an interest rate cut by the Bank of England in August all but certain.

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