20000311

Dollar yields to euro and yen in US trade

NEW YORK: The dollar drooped across the board on Thursday as the euro rebounded from recent heavy selling and the yen found support from stronger than expected Japanese data and capital inflows ahead of the fiscal year-end.

The single currency bounced to its highest level against the dollar in a week and stabilised around two yen above its all-time floor against the Japanese currency hit on Tuesday, but dealers doubted the euro could sustain its gains.

The euro gained nearly a cent on the day, pushing as high as 97 cents in New York hours before slipping back to close at 96.62 cents.

"If you asked me yesterday what would surprise me, I'd say having the euro go up," said Peter Lorraine, senior foreign exchange manager at Brown Brothers Harriman in New York.

The euro slumped to a week low on Wednesday, dangling just 1-1/2 cents from a record floor at one point.

Lorraine attributed the currency's rise to a few large euro orders in the morning, which forced some players who had been betting the euro would remain under pressure to adjust their positions.

The euro also found support from news that growth in the 11-nation euro zone rose 0.9 percent in the fourth quarter and by hawkish comments on from European Central Bank Vice President Christian Noyer.

"Q4 pan-European data was seen by the market as being euro bullish," said Paul Podolsky, currency strategist at FleetBoston.

But most analysts said the euro was vulnerable to return to record lows.

"The euro is in a structural downtrend against the dollar," said Kenneth Bercuson, currency strategist at Donaldson, Lufkin and Jenrette.

Bercuson said soaring US growth and productivity and higher rates of return would keep the dollar well supported. Only aggressive Federal Reserve rate hikes which prompt sharp declines on Wall Street would hit the dollar, he said.

The dollar meanwhile dropped more than 0.5 percent against the yen in the wake of news that Japan's core private sector machinery orders rose 0.8 percent in January, far outstripping analysts' calls for a 7.7 percent drop.

Analysts also cited the repatriation of Japanese funds held overseas ahead of the end of the fiscal year this month as another factor buoying the yen.

New York traders pushed the dollar as low as 106.19 yen, despite the threat the Bank of Japan could intervene to weaken the yen as it did in Asian hours on Wednesday.

Analysts said the BoJ's solo action with no coordination with US or European central banks had emboldened some speculators.

"The BoJ is alone on this and the market knows that," Podolsky said. "It would be entirely different if they'd intervened with the ECB or with someone else. That tempts the market to test them."

But caution prevailed, and the dollar rebounded to close at 106.60, or 0.57 percent weaker than its 107.21 close on Wednesday.

Analysts are already bracing for a soft fourth quarter gross domestic product report due out of Japan on Monday. Such a report would technically put Japan back into recession and analysts said this raises concern about how the yen may react.

Meanwhile sterling was mostly flat against the dollar at $1.5812 after the Bank of England left Britain's repo rate unchanged at 6.0 percent on Thursday as expected.

BoE Governor Eddie George said all Monetary Policy Committee members would be happier with the pound at a lower level while MPC member DeAnne Julius said it was unwise to keep raising rates without evidence that sterling was falling.-Reuters