Thursday September 7, 2006 - 10:37:54 GMT
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Reuters - www.reuters.com
FOREX-Yen, on G7 agenda, jumps vs dlr, euro
FOREX-Yen, on G7 agenda, jumps vs dlr, euro
Thu Sep 7, 2006 6:23am ET163
(Updates prices, adds fresh quotes, changes byline)
By Sujata Rao
LONDON, Sept 7 (Reuters) - The yen jumped versus the dollar and the euro on Thursday after Germany's deputy finance minister said yen weakness and China's yuan currency would be discussed at a Group of Seven meeting later this month.
Thomas Mirow told reporters in Berlin the "yen had clearly weakened against the euro and the dollar" -- an issue that would be discussed at the mid-September meeting in Singapore.
Analysts said the comments reflected euro zone governments' unease about the euro's strength against the Japanese currency.
"Obviously it's becoming a source of concern that euro/yen has hit record highs day after day. It's a topic that a lot of the European ministers would like to talk about," Bank of America currency strategist Kamal Sharma said.
"Obviously they are going to talk about the Chinese currency as well. There is ongoing concern about Asian currencies needing to be more flexible and China is obviously at the centre of that," Sharma added.
By 1010 GMT the yen had firmed half a percent to 116.18 per dollar , just off the day's high of 116 and recovering from a three-day low of 117.05 just before Mirow's comments.
Against the euro the yen gained more than half a percent to 148.51, paring gains from a high of 148.27 . It recently hit a record low against the euro beyond 150.70.
Caution over the near-term outlook for Japanese rates after a slew of weak economic data has prompted some analysts to scale back short-term forecasts for the yen while global investors are continuing the trend for borrowing the low-yield currency to fund riskier investments.
The Japanese central bank is seen leaving rates steady at 0.25 percent at its two-day policy meeting that started on Thursday.
But the single currency has been supported as euro zone interest rates are expected to rise further from the current 3 percent, a view that was reinforced by European Central Bank Governing Council member Yves Mersch on Thursday.
Mersch said the ECB will show the greatest vigilance towards inflation beyond the immediate future.
Interest rate expectations in the United States also received a boost after data on Wednesday showing a surprisingly big jump in U.S. labour costs suggested that the two-year long rate tightening cycle may have further to go.
The 5 percent jump in unit labour costs during the second quarter raised the prospect that rising wage pressures would prompt the Fed to resume the string of rate increases after it kept them unchanged at 5.25 percent at its meeting last month following 17 consecutive hikes.
That data helped the dollar steady against the euro, trading slightly firmer at $1.2782 .
"The dollar looks very rangebound," said Teis Knuthsen, head of FX and fixed income research at Danske Markets in Copenhagen.
"What has been driving currencies for the last month has been absolute rates."
The pound was down slightly against the dollar at $1.8812 after sliding more than 1 percent in the past two days to a 2-1/2 week low on soft economic data and worries about pressure on Prime Minister Tony Blair to step down from office.
The currency failed to react significantly to British media reports that Blair would step down early in May next year. Blair is expected to lay out a timetable for his departure later in the day.
"The market doesn't like political uncertainty. Until we get a clearer picture on that front sterling will remain vulnerable," said Audrey Childe-Freeman, European economist at CIBC World Markets.
Investors are also waiting for a Bank of England rate decision at 1100 GMT. The BoE is widely expected to hold rates steady at 4.75 percent after a surprise increase in August.
U.S. Treasury Secretary Henry Paulson will be attending an Asia-Pacific Economic Cooperation (APEC) forum meeting in Vietnam this week, along with his counterparts from China and Japan.
A news conference from BOJ Governor Toshihiko Fukui after the bank's policy meeting on Friday and a speech by San Francisco Fed President Janet Yellen later on Thursday will also be scrutinised for clues on future monetary policy.
Â© Reuters 2006. All Rights Reserved
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