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Dollar grinds

higher vs

mark

LONDON: The dollar steamed to new highs for the fifth consecutive day against the mark, setting a fresh 14-month peak at 1.5312 as the Bundesbank endorsed further dollar/mark gains and fuelled hopes of further credit easing.

Bundesbank council member Franz-Christoph Zeitler said the mark was still overvalued against the dollar and last week's cut in the German discount rate was not necessarily the last.

The mark's relentless slide against the European currencies was checked after a renewed early plunge, however, as Zeitler went on to say he thought the mark was no longer overvalued against its neighbouring European units.

"The Bundesbank is basically telling the market how to trade, as long as people are happy to follow,their comments will be crucial," said Tim Fox, economist at Standard Chartered Bank.

Given Zeitler's comments today, it makes sense to stay long of dollar/mark while allowing for a pause in the mark's losses on the European crosses, he said.

At 1504 GMT, the dollar was at 1.5290/95 marks, compared with 1.5215/20 late Wednesday and just off the day's high.

"It's a case of the Bundesbank says "jump" and the market jumps," said Paul Meggyesi, senior currency strategist at Deutsche Morgan Grenfell.

Meggyesi said Zeitler was justified in saying there is no longer a misalignment on most of the mark's European crosses. But unless some sort of turnaround in the German economy is seen or there is a serious dent to credit easing expectations, the mark will remain weak, he said.

There was little sign of a change today and the Bundesbank revised February German industrial output and orders lower.

Dealers said the market is not long of dollar/mark overall, and that is reflected in its gradual, patient appreciation. If that continues, the 1.55 level will be hit sooner rather than later while the initial near-term target is 1.5380.

Analysts said a driving force behind the dollar/mark rise is the mark's continued collapse against a more robust yen. The cross sliced through key support at 69.75 here today, plumbing new depths to a 7-month low at 69.56 yen per mark.

The slide in mark/yen has acted as a cap on dollar/yen, meantime. Heavy offers over 107 were seen earlier in the session and prompted a return to support in the low 106's.

Dollar/yen received only a brief fillip overnight when Japan announced repurchase agreements involving U.S. government securities with seven other Asian nations. The pacts are aimed at providing excess Bank of Japan dollars for intervention.

"Timing is the secret of good comedy and market strategy. The BOJ/MOF timing of this announcement pre-Golden Week may thus be deliberate, but we believe the pact is of no real importance for dollar/yen intervention ability," said Joe Prendergast, foreign exchange strategist at Merrill Lynch.

Dealers said comments by a Japanese finance ministry official that at about 106, dollar/yen was at "normal temperature", were of more interest and reinforced the view that both Tokyo and Washington are comfortable with a rate between 105 and 110.

Despite its bounce in Europe, the mark set fresh lows in early trading.

Against the mark, the French franc and the Danish crown surged to 33-month highs and the lira and peseta set 18-month peaks. The pound held 2.30 marks and set a seven month high, while the European currency unit set a new eight-month high.

Although Zeitler's comments helped the mark bounce, the Bank of France's failure to cut its 3.70 percent intervention rate despite widespread expectations of a cut, was cited by some as unnecessarily cautious and exaggerated the franc retreat. It cut its 5-to-10-day lending rate to 4.90 percent from 5.5 percent, however, leaving the prospect of more easing in the pipeline.-Reuter