Monday October 4, 2004 - 10:28:17 GMT
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INVESTICA Ltd - www.investica.co.uk
China resists pressure
The lack of Chinese commitment to a stronger yuan will tend to undermine the yen in the very short term and there will be further caution over the Japanese economy. The market is, however, already short of the yen and the dollar is likely to face further selling pressure from exporters. Overall, the dollar offers little immediate value above the 111.0 level.
The yen was unable to strengthen through the 109.8 level on Friday, retreating back towards 110.5 and the US currency retained a stronger tone on Monday at just above 110.5. The Nikkei index rebounded strongly on Monday which will offer near-term yen support, but high oil prices will remain a background concern.
There were no significant major developments at the G7 meetings with the basic stance towards currencies unchanged as the G7 called for flexibility where is was not present. China was also unwilling to publish a timetable towards giving the yuan greater flexibility. This will tend to offer immediate support to the US currency, although there will be some suspicion that some form of informal arrangement was reached behind the scenes. If there is a reluctance to shift Asian currencies, the immediate implications are dollar positive, but the longer-term implications will be dollar negative as underlying stresses continue to build.
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