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Dollar move up against mark yen

NEW YORK: The dollar closed slightly higher against the mark and yen amid uncertainty on the prospects for a German interest rate cut this week.

Good two-way interest to buy and sell the dollar kept it pinned in narrow ranges for most of the day, dealers said.

"Dollar/mark is underpinned ahead of the Bundesbank meeting on Thursday. Some people are looking for some kind of cut and the Bundesbank likes to keep the market guessing," said Win Thin, international economist at Midland Bank.

The dollar rose to 1.5098/03 from 1.5075/80 at the open. Against the yen, it firmed to 108.19/26 from 108.14/21.

A Reuter poll conducted in Germany showed that only three out of 15 economists questioned predicted the Bundesbank will cut its key discount and Lombard rates at Thursday's council meeting.

Despite those forecasts, Thin said some in the market still see a possibility the Bundesbank will ease policy this week to shore up Germany's sluggish economy. That uncertainty put a floor under the dollar, he added.

There was talk in the market of strong interest by funds to buy dollar/mark at 1.5060 and dollar/Swiss at 1.2260. But selling interest was strong around 1.5120/30, capping gains.

Meanwhile, dollar/yen appeared to be supported by orders around 108. There were rumors a Japanese bank had orders to buy $500 million at 108.

There was also speculation in the market that the United States and Japan may not want to see the dollar/yen exchange over 110. Further appreciation could bring on outcry from U.S. automobile manufacturers who fear a strong dollar would give an unfair advantage to their Japanese rivals.

There was some nervousness in the market Bank of Japan Governor Yasuo Matsushita was hinting at higher interest rates when he said a prolonged easy monetary policy contributed to the creation of Japan's "bubble" economy of inflated stock and land prices in the late 1980s. The statement pushed the dollar lower overnight.

"The comments out of BOJ appear to be putting the market on some kind of warning that the low interest rate monteray policy that has been pursued, and which has been supporting dollar/yen, may be coming into question," said Stephen Flanagan, foreign exchange dealer at Credit Agricole.

Flanagan said the prospect of higher interest rates in Japan was prompting investors to reverse yen carry trades.

"Last night's Bank of Japan commments were a veiled warning to those who have very highly leveraged yen carry trades that these positions could be at risk," Flanagan said. "The Bank of Japan is clearly putting the market on notice that this yen carry trade could have some risk."

In other trade, the dollar closed at 1.2297/04 Swiss francs up from 1.2276/83. The British pound finished at $1.5074/81 down from $1.5090/97. The Australian dollar ended at $0.7859/64 down from $0.7875/80.-Reuter