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Dollar fails to stay

above 107 yen

TOKYO: The dollar failed to stay above 107 yen in late Tokyo on Friday due to persistent position adjustment sales and yen-buying interest in cross trade and marks, after a surprise German interest rate cut on Thursday.

"Given persistent position adjustment sales and hefty cross-yen buying demand, the dollar may fall further in a downward correction," said a British bank's senior dealer.

In the early morning and afternoon, the dollar briefly clawed back to 107 yen on bargain-hunting by Japanese investors and speculation that the United States may press for Japan to maintain its easy credit policy at Sunday's Group of Seven (G7) nations' gathering in Washington.

The U.S. treasury secretary said Thursday Japan's economy has begun to grow again and Tokyo needs to continue policies to make sure that the expansion is sustained. He also welcomed Bundesbank's decision to cut interest rates. "But staying above 107 yen was short-lived, giving the market the impression that the dollar's recovery is not going to be easy," said a trader.

Dealers agreed that the dollar needs to have a further downward correction before resuming a rise to 109 yen, but opinions were divided as to how much the dollar should fall.

One dealer said he expected the dollar to fall to around 105 yen, but another said it could be sustained above 106 yen.

"There is the possibility that the dollar/yen could fall in tandem with its further downward correction against the mark," said one options dealer. He said hedge sales using options and unloading of stale long positions could cap the dollar on rises. There was talk that stop-loss sales were in place between 1.4950 and 1.5000 marks.

The Bundesbank triggered a wave of European rate cuts by announcing half-point cuts in its discount and Lombard rates to 2.5 percent and 4.5 percent, respectively.

But the bank left the prospect of lower repo rates to allay market speculation about the end of the easing cycle.

Sluggish economies in Europe are likely to be high on the agenda at Sunday's G7 meeting and the currency market will not be in the spotlight, dealers said. They said they did not expect any specific accords on currencies to be made at the meeting. The G7 nations are just likely to call for closer cooperation and hail the dollar's recovery.

"A lot of people are licking their wounds," said a U.S. bank dealer in Singapore.

He said the mark/yen was likely to be sold down further.

"The 70.80 level is very crucial. It could change the whole picture for mark/yen," he said.

Mark buying demand for yen by Japanese investors sent it slightly higher in Asia, but it remained vulnerable to falls, dealers in Tokyo said. The mark was quoted at 71.14 yen at 0711 GMT against its 71.02 yen close on New York on Thursday.-Reuter