Wednesday March 22, 2006 - 11:08:21 GMT
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INVESTICA Ltd - www.investica.co.uk
Carry trades remain in focus
The dollar found support close to the 116.25 level on Tuesday and the US currency strengthened back to above the 117.0 in New York. The US currency encountered some selling pressure close to 117.30 in local trading on Wednesday led by exporter selling.
The pressure to cut carry trades had lifted slightly after recent heavy position liquidation, but the tightening global liquidity trends will maintain the risk that short yen positions will be forced out of the market and there will still be great caution over selling the yen, especially with high-yield selling pressure. A further increase in emerging-market yield premiums would encourage a reduction in high-yield positions funded through the yen and could propel the yen sharply stronger. Longer-term relief and a weaker yen may be forthcoming from late March ahead of the new Japanese fiscal year.
The Chinese yuan retreated slightly on Wednesday back to around 8.03, but the underlying pressures for Asian currency appreciation are liable to continue with the US political pressure for a stronger yuan unlikely to abate over the next few weeks.
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