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Dollar lower vs mark,yen in Europe

LONDON: The dollar ended lower against the mark and yen here as traders digested the impact of the Bundesbank's interest rate cut on Thursday and eyed the weekend meeting of finance minsters from the Group of Seven leading industrialiased nations.

Although dollar/mark's retreat since the Bundesbank's half-point discount rate cut has been partly due to disappointment at an unchanged 3.3 percent repurchase rate, analysts were generally confident of further repo easing and said the dollar would remain buoyed on dips below 1.50 marks.

Dollar/yen's retreat, however, may continue, they said.

"The trade we think everyone should be looking at is a lower mark/yen," said Ian Amstad, economist at Bankers Trust.

"The 110 level on dollar/yen will be a tough barrier with rumblings from U.S. exporters likely on any move above that level," said Amstad. "The Bundesbank, on the other hand, is sanctioning a weaker mark and a move up to 1.60 on dollar/mark would still be within their comfort zone."

At 1520 GMT, the dollar was at 1.5065/70 marks, compared with 1.5115/18 late Thursday but well off intraday lows at 1.4993. Against the yen, it was at 107.05/10, down from 107.50/60 late yesterday but off the day's trough at 106.65.

The mark/yen rate, meantime, was at 71.05/08, down from 71.11/14 late Thursday.

Analysts said the relative interest rate outlooks in the G3 nations also point to a lower mark/yen.

German market rates will most likely grind lower in the coming months as the Bundesbank uses the fresh scope for repo easing afforded by the latest discount rate cut and M3 growth slows. U.S. rates are seen as broadly on hold for now, with a slight tendency higher as employment growth there is eyed. Japan, however, is furthest ahead in the cycle and many see a rise in the 0.5 percent discount rate as only a matter of time.

"In some respects, the weekend G7 may be interesting to get fresh spin on where G3 interest rates in particular are heading," said a trader at a Swiss bank here.

The finance ministers and central bankers meet in Washington on Sunday. No collective communique is scheduled to be released, however, and individual ministers' comments about domestic policies are likely to be the only ones of market interest.

Traders said U.S. Treasury Secretary Robert Rubin helped buoy dollar/yen overnight by advising Japan to do all it can to keep its economic recovery going -- a comment that suggested the U.S. will advise Japan against raising interest rates too soon.

But, most traders and analysts said the G7 ministers will all, by and large, be happy with recent currency market developments and trends.

"The G7 in general wil be delighted with the way foreign exchange markets have moved in recent weeks and months and will have no reason whatsoever for rocking the boat," said Amstad at Bankers Trust.

Elsewhere, the Swiss franc rallied strongly against the mark and the dollar after outgoing Swiss National Bank president Markus Lusser said he saw no need to lower Swiss short-term interest rates any further.

Lusser, whose comments reinforced a growing market belief that Switzerland has come to the end of its current credit easing cycle, also said he hopes the SNB can get inflation lower and that monetary policy may have to change if growth in the SNB's key money supply aggregate continue to accelerate.

Despite being the cheapest funding currency in Europe during a dollar bullish environment, the Swiss rate outlook and the rise in optimism about EU economic and monetary union are bulwarks for the Swiss unit against the mark.-Reuter