Thursday April 13, 2006 - 09:49:05 GMT
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INVESTICA Ltd - www.investica.co.uk
Asian pressures restrain dollar
The dollar hit resistance above the 118.50 level on Wednesday and was holding close to this level in early Europe on Thursday with the underlying forces on the yen closely balanced.
Yield considerations will remain important and the dollar's yield advantage over Japanese bonds has widened which will increase the incentive for buying US bonds. The overall evidence, however, suggests that Japanese investors are more cautious over investing overseas and this will slow capital flows out of Japan with domestic funds increasing demand for domestic bonds at the expense of overseas holdings. Net flows from Japan will, however, lessen the potential for strong yen gains.
Regional currency policies will remain important ahead of President Hu's US visit to the US next week. The Chinese yuan weakened significantly on Thursday, weakening to near 8.02 against the dollar, but underlying economic and political pressures still look to be for stronger Asian currencies and this should offer significant background yen support.
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