20000125

Euro dips toward dollar parity, yen eases after G7

TOKYO: The euro slipped towards parity with the dollar in early Asian trade on Monday, after the Group of Seven industrialised nations made no specific reference to the single European currency in a statement after Saturday's Tokyo meeting.

The dollar also strengthened against the yen, bolstered by the G7's statement that member nations shared Japan's concerns about a strong yen.

The dollar/yen rate had dipped on Friday as doubts mounted over whether Japan could convince its G7 partners to make a specific reference to yen strength.

The euro was quoted at $1.0033/38 in early Monday trade in Tokyo, compared with New York's close at $1.0089 on Friday. It had slipped as low as $1.0015 earlier in Asia on Monday.

The dollar was quoted at 105.14/17 yen, easing from the early Asian high of 105.30 yen but above Friday's New York close at 104.68 yen.

"The euro could test parity sometime today and dip below its all-time low, possibly when European markets open later," said a dealer at a Japanese trust bank.

The euro set a record low of $0.9990 on December 3.

Sentiment towards the euro soured due to European officials' apparent indifference towards the currency's weakness.

German Finance Minister Hans Eichel said on Saturday he was not worried about the euro, while European Monetary Affairs Commissioner Pedro Solbes played down the euro's weakness, telling Reuters Television it was not a key issue.

"From the point of view of economic fundamentals, parity is not a crucial point of discussion," Solbes said.

On the Japanese currency, dealers said the statement by the meeting of G7 finance ministers and central bank chiefs was likely to help limit the upside against the dollar in the near term.

"The fact that the G7 continued to formally refer to (yen strength) should discourage yen buying," said Kimihiko Tomita, head of corporate and institutional sales at Chase Manhattan Bank's global trading division.

But dealers agreed the statement was not strong enough to drive the US currency significantly higher against the yen.

"The G7 statement did not say a weak yen is positive for Japan. It merely stated concerns about its strength," Tomita said.

The dollar could be capped by a pick-up in Japanese exporter selling ahead of Japan's fiscal year-end on March 31, dealers said.

"The chances of coordinated G7 action to check the yen's rise still seem to be slim, so the dollar's upside is likely to remain limited against the yen over the medium term," said the trust bank dealer.

But the possibility of the Bank of Japan (BOJ) acting alone to check the yen's rise was expected to discourage aggressive yen buying, he added.

With the G7 out of the way, the market was likely to focus on the US Federal Open Market Committee meeting on February 1 and 2, which is widely expected to approve a 25 basis point rise in the key short-term interest rate.

Dealers said the market would also be looking at US economic data, including fourth quarter gross domestic product numbers due on Friday, for clues on how aggressively the Federal Reserve is likely to tighten credit this year.

"The market will be taking its cues from the reaction to those events in the US asset markets," said a dealer at a Japanese city bank.

Some dealers said they will be watching how Japanese long-term interest rates move after the BOJ pledged to maintain its zero interest-rate policy at the weekend G7 meeting.

Currency bid prices. All data taken from Reuters with percent change calculated from the daily US close.-Reuters