Monday May 2, 2005 - 08:11:17 GMT
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ACM REFCO - www.ac-markets.com
FOREX-Yen gives up gains after yuan talk cools.
The yen pulled back on Monday from six-week highs hit against the dollar as talk cooled that China was about to relax the yuan peg and after reports that North Korea may have fired a missile into the Sea of Japan.
The suspected missile test stymied a rally that had also pushed the yen to a three-month peak versus the euro after a state-run report on Friday said deepening reforms had created the conditions for China to revalue the yuan.
That report, coupled with a surprise rise in the yuan's value beyond its tightly regulated trading band on Friday that was later called an error, added to already intense speculation that China will soon relax the yuan's peg.
Buying the yen is a popular bet on a near-term move by China to loosen its tight 8.28 peg to the dollar, which is expected to spark a broad rally in Asian currencies.
But few in the market expect a yuan revaluation in the next couple of months, and some analysts said that the market may have gotten ahead of itself during the latest wave of yen buying.
"The fact that the dollar and the euro have recovered somewhat against the yen since Friday suggests that the yen buying on the yuan speculation may have been overdone," said Kikuko Takeda, currency analyst at Bank of Tokyo-Mitsubishi.
At the same time, some dealers said the market would act cautiously in case China revalues its currency soon.
"(The market) still has a fear of really taking any action," said a trader at a European brokerage.
Trading was quiet in Tokyo, where markets will close for Golden Week holidays on Tuesday, Wednesday and Thursday.
Traders and investors also treaded softly before a variety of economic data in the United States and Europe, as well as a Federal Reserve policy meeting on Tuesday.
At 0616 GMT, the dollar fetched around 105.30 yen, up about 0.6 percent from 104.75 yen in late U.S. trading. The U.S. currency shed 1.3 percent versus the yen on Friday.
Some analysts said IMM currency positions data showed that the yuan talk offered some in the market a convenient excuse to switch gears from short to long yen positions.
IMM speculators had begun to clear out shorts in the week through April 26 after the number of yen short positions hit their highest level in six years just a week before.
But the yen slipped early on Monday in part due to reports North Korea may have test-launched a short-range missile into the Sea of Japan on Sunday, stoking fears Pyongyang could be headed next toward a nuclear test.
The euro bought around 135.35 yen, recovering around 0.4 percent from the level in late New York trade.
The single European currency fell 1.5 percent to a three-month low around 134.80 on Friday, suffering its worst nominal one-day loss since March 2004, according to Reuters data.
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