960417

Dollar ends

little changed

LONDON: The dollar ended steady to a shade weaker against the mark and yen in Europe as traders and analysts began the long vigil ahead of Thursday's Bundesbank council meeting, amid persistent hopes for a credit easing.

The easier dollar/mark tone was helped as the German unit firmed a touch on its European cross rates, prompted mainly by profit-taking on its recent sharp decline. This weekend's Italian election kept traders shy of lire in particular.

The summit between U.S. President Bill Clinton and Japanese Prime Minister Ryutaro Hashimoto had little lasting effect on the dollar as all expressed satisfaction with recent currency moves.

At 1523 GMT, the dollar was trading at 1.5067/77 marks compared with 1.5085/95 late Tuesday. Against the yen, it was at 108.21/26 compared with 108.12/15 yen late yesterday. The mark/yen cross ended at 72.81/84, slightly firmer than the 71.62/64 late yesterday.

"We think the Bundesbank will hold off for now as the performance of bunds in recent days will be a big deterrent," said Michael Burke, economist at Citibank. Bundesbank rate cuts have typically been preceded by a few weeks of bund rallies in the past as that is one of the central bank's key benchmarks of market comfort with the inflation outlook, he said.

Analysts said the Bundesbank would be loath to risk exaggerating bund market weakness by being seen to ease credit while there was still market concern about the money supply and inflation outlook. That is why it may need to show the market evidence of slowing M3 money growth before conducting a rate cut. The March M3 report is due out from Friday onwards.

Only three of the 15 analysts polled by Reuters said they expect a rate cut at tomorrow's meeting.

"To some extent, the prospect of a rate cut is a case of being better to travel than to arrive," said Burke at Citibank. That is because many may think a cut is the last in the cycle.

Given a desire to keep a lid on the mark and on bund yields, the Bundesbank will want to avoid signalling the end of the easing cycle. As a result, many analysts believe it may cut its discount rate by a quarter point instead of a half point and leave the prospect of further easing in the pipeline.

Elsewhere, the meeting of finance ministers from the Group of Seven industrialised countries in Washington on Sunday is not expected to stir markets much.

"As the Clinton/Hashimoto summit showed overnight, most G7 officials are very happy with the recent dollar rise and won't want to rock that boat," said one trader at a UK bank here.

U.S. and Japanese officials endorsed the dollar's rise at the overnight meeting. U.S. Deputy Treasury Secretary Lawrence summers reiterated the U.S. administration's desire for a strong dollar and together with Japanese finance minister Wataru Kubo said both would advocate continued G7 cooperation on currencies.

Kubo said the yen's decline in recent months was still part of a correction of an overshoot but both Kubo and Summers denied any specific currency levels were discussed.

Dealers say 110 still looks to be a tough barrier. Three and six month dollar forward rates are now above 105.

As a result, Japanese exporters will be tempted to sell forward their dollar receivables at rates which have reached their highest in about two years.

Elsewhere, the mark firmed a touch on its European cross rates as profit taking set in.

The lira edged lower as Sunday's elections approach, while the French franc was off two-year highs as the International Monetary Fund warned of residual risks of turbulence in the run-up to a single European currency in 1999. The IMF said it sees EMU in 1999 as "feasible," though not yet assured.-Reuter