14 December 2005, 10:40  Dollar falls as year-end profit taking kicks in

The dollar hit a six-week low against the euro and fell more than 1 percent versus the yen on Wednesday as traders rushed to book profits on the U.S. currency's gains after clearing the last of this year's major economic events. The dollar tumbled after a shift in rhetoric by the Federal Reserve following its interest rate rise on Tuesday signaled that the central bank was one step closer to ending its 18-month credit tightening streak. A slightly weaker-than-expected Bank of Japan tankan survey of business confidence gave the dollar a slight boost at first, but then an array of investors stepped in to sell, particularly against the yen. The euro's rise above $1.20 accelerated the slide. Some market players said the extreme build-up of bets against the Japanese currency had made the market vulnerable for such a snap back, and the closing of those shorts could extend for a while and be exacerbated by thin year-end trading conditions. "There is a lot of liquidation of short yen positions, and I'm not sure if it is over yet," said Noriyuki Kato, treasury manager at State Street Global Markets in Tokyo. "This kind of stuff will not end in a day." Yen buying spread across a variety of currencies, helping it recover from seven-year lows hit against the pound earlier this week and 8-1/2-year lows versus the high-yielding New Zealand and Australian dollars last week.

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