Monday April 4, 2005 - 07:42:26 GMT
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ACM REFCO - www.ac-markets.com
Dollar rises to 5-1/2-month high versus yen
The dollar hit a fresh five-and-a-half month high against the yen on Monday as the market shrugged off a poor U.S. jobs report and focused on the Federal Reserve's plan to keep lifting interest rates.
The dollar was initially dumped on Friday after a report showed the U.S. economy generated just 110,000 non-farm jobs last month, half of what economists had forecast.
But the U.S. currency soon recovered as the market zeroed in on U.S. data that showed a slight rise in hourly wages, as well as another report showing prices paid by manufacturers spiked in the same month.
It found further support after Fed officials signalled they would keep lifting rates to fight off simmering inflation pressures, with St. Louis Fed President William Poole suggesting on the weekend there was a risk of higher inflation.
By 0623 GMT, the dollar bought around 107.86 yen, its highest level since mid-October. It fetched 107.57 yen in late New York trade on Friday.
The euro was down around 0.2 percent at $1.2880, in sight of a six-week low of $1.2857 hit last Monday.
The dollar has risen more than two percent against the yen and more than 1.5 percent versus the euro since the Fed suggested two weeks ago that it could raise interest rates quicker than the current moderate pace if inflation heats up.
Fed President Poole said on Saturday: "The upward thrust to the economy appears quite substantial and the risk of higher inflation over the next six months or so seems clearly greater than the risk that inflation will fall below a desirable range."
The Fed has raised interest rates by a quarter percentage point seven times since June, bringing its funds rate to 2.75 percent. Over the same period rates have been stuck at 2.0 percent in the euro zone and virtually zero in Japan.
Analysts say that much of the dollar's gains in past weeks have been driven by the unwinding of short positions, as the prospect of continued rate rises outweighs worries about large and growing U.S. fiscal and external deficits.
Currency speculators in the Chicago futures market slashed their bets against the dollar by around two thirds in the week ended March 29, data from the Commodity Futures Trading Commission showed on Friday.
Although higher inflation usually erodes the value of a currency over the longer term, in the near term it could cause the Fed to step up the magnitude of rate rises, drawing more funds to dollar deposits and supporting the U.S. currency.
Meanwhile, the market showed little reaction to comments from Japan's Finance Ministry that it had no plans to change the currency composition of its $840.6 billion foreign exchange reserves -- the world's largest.
Clarifying Prime Minister Junichiro Koizumi's remarks last month that had sparked speculation Japan could sell dollars to diversify its reserves, the ministry said there was no such plan.
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