Friday July 15, 2005 - 09:41:21 GMT
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INVESTICA Ltd - www.investica.co.uk
Yuan speculation returns
The dollar weakened to a low of 111.65 after the US data on Thursday, but the yen was unable to hold these gains and weakened back through 112.0 in New York. The yen also weakened to near 112.4 in Asia before finding fresh support and the Japanese currency strengthened back through 112.0 in early Europe on Friday.
The yen was supported by a media report quoting US administration officials as stating that the Chinese authorities would revalue the yuan during August ahead of a September visit to the US by Chinese President Hu. Inevitably there will be caution over the report, but the issue will offer some near-term yen support. The potential for yen gains will be magnified by the fact that the reports suggested an initial yuan revaluation of at least 10% rather than a more limited near-term move. The Chinese forward NDF rates strengthened to a 2-year high on Friday as revaluation speculation continued.
The yen will still be hampered by the strength of oil prices and the Japanese currency is also vulnerable on yield considerations, but there is likely to be pressure for position adjustment ahead of the weekend. Any shift in positioning will offer support to the Japanese currency and could trigger a sharp rally, although trading is likely to remain choppy.
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