Friday September 23, 2005 - 10:18:19 GMT
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INVESTICA Ltd - www.investica.co.uk
Yen jump on yuan technical changes
The yen weakened to near 111.7 against the US currency during Thursday, but the yen managed to strengthen back through 136.0 against the Euro and strengthened further in Europe on Friday as the Chinese central bank adjusted the yuan regime. The yen will find it difficult to secure further near-term support from the Chinese move.
The Chinese yuan strengthened to a new post-revaluation high of 8.086 against the dollar on Friday. The central bank has widened the trading band for non-dollar currencies against the yuan to 3.0% and widened the retail dollar band, but has held the inter-bank dollar band steady. This can be seen as aiming to head-off speculative inflows into the yuan and lessened the need for intervention if there are sharp Euro/dollar moves. Overall, however, there is also likely to be underlying pressure for further yuan gains over the next few weeks which will help underpin the yen.
Asian currencies will also be an important focus at the G7 meetings starting on Friday and there is likely to be pressure for Asian currencies to appreciate in the medium term. These pressures will at least tend to discourage yen selling with a small possibility of sharp gains if there is tough rhetoric from G7 over the need for Asian currency gains.
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