Tuesday June 7, 2005 - 09:51:02 GMT
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INVESTICA Ltd - www.investica.co.uk
Yen takes advantage of dollar doubts
The dollar weakened to lows of 106.70 against the yen during Monday before a weak recovery in New York. The Euro remained weak against the yen with a temporary dip to below 131.0, an 11-month low, before a slight recovery in early Europe on Tuesday. The yen remained stronger than 107.0 against the dollar on Tuesday with the dollar weakening to 106.55.
The uncertainties over US economic trends, coupled with persistent negative sentiment over the Euro-zone, will continue to offer background yen support in the short term. Expectations of a US slowdown have not been dented by Greenspan's comments overnight and this will underpin the yen as it will tend to slow capital outflows on yield considerations. Although yield will still favour the dollar, US interest rates at 4.0%, coupled with doubts over second-half interest rate trends, could push capital outflows to below the level needed to stop the yen appreciating given the underlying balance of payments strength.
Fed Chairman Greenspan repeated his comments that greater yuan flexibility would be desirable and he also stated that he expected that the Chinese authorities would move soon. The Chinese central bank governor downplayed expectations of a short-term move and also repeated that external pressure was not helpful. The underlying speculation over a Chinese move will continue to offer background support to the yen, especially as the topic will be an important focus at the G7 meetings from this weekend.
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