Monday January 9, 2006 - 10:41:20 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar confidence slumps
The dollar weakened sharply after the US payroll report, dropping to lows below 114.50. The dollar weakened to lows of 113.75 in Asia on Monday despite a Japanese holiday before recovering back to 114.20.
The Japanese Finance Ministry has not indicated major concern over the yen's level so far with Finance Minister Tanigaki stating that moves had been volatile, but within longer-term fundamentals. Unease over warnings will tend to deter aggressive dollar selling, but there is no suggestion at this stage of near-term intervention.
The Chinese monetary authorities have indicated longer-term plans to diversify foreign exchange reserves away from the US currency. This remains a potentially important source of strength for Asian currencies and US dollar weakness, especially in the medium term. Asian currencies are likely to retain near-term underlying strength which will underpin the yen. Gains will, however, be curbed by potential central bank intervention and regional opposition to rapid currency gains.
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