Friday February 18, 2005 - 11:36:03 GMT
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INVESTICA Ltd - www.investica.co.uk
Barriers to dollar gains
The dollar has continued to find resistance above the 105.5 level against the yen and the dollar was trading around 105.3 in early Europe on Friday. The dollar was being hampered slightly against the yen by profit taking on long Euro positions against the Japanese currency.
The Nikkei index was firm with a move to a fresh 30-week high. The latest capital flow figures reported a JPY68bn inflow info Japanese equities in the latest week and bond inflows of JPY231bn. This was also the 17th consecutive week of capital inflows to Japanese markets which will offer good yen support and severely limit the potential for dollar gains.
More positively for the US currency, the latest Fed capital figures reported that there was renewed overseas buying of US Treasuries over the latest week with a net inflow of US$13.8bn. This will ease immediate fears that the appetite for US securities is fading and will offer some support short-term support for the US currency.
The issue of a yuan revaluation and Asian currency gains will still be an important medium-term factor. ECB economist Remsperger called for Asian currency flexibility and the underlying pressures for Asian gains will restrict the potential for dollar gains against the yen.
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