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IMM currencies end down, worries about Kosovo

CHICAGO: Most IMM currencies closed lower after hopes for a peaceful resolution to the Kosovo conflict were dashed on Tuesday, traders and analysts said.

June euros lost their short-covering bid and fell below $1.80 after Yugoslav President Slobodan Milosevic said on state TV he was ready to withdraw some forces from Kosovo if NATO halted air strikes on Yugoslavia, they said.

The light selloff in euros spilled into the Swiss franc and mark pits and weighed on the yen, which had earlier flirted with gains. Currencies had no reaction to the Federal Open Market Committee's decision to leave U.S. rates unchanged. The FOMC made no announcement on a policy "bias," or the likely direction of future rate moves. Some economists saw an outside chance that the FOMC would announce a bias toward tighter monetary policy.

Overall, most traders and market analysts expected no announcement regarding the Fed's bias.

Instead, many focused attention on events overseas.

In remarks quoted by state T.V., Milosevic said after emergency talks with Russian Prime Minister Yevgeny Primakov that Belgrade remained committed to a political settlement with separatist Kosovo Albanians but NATO attacks on his forces must stop first. June euros opened higher and found a strong short-covering bid after Tass reported that Primakov said his talks with Milosevic in Belgrade had brought results.

"For the time being, the euro is trading based on beliefs that air attacks will go forward," George Tzanetatos, vice president at Merrill Lynch, said.

"If it weren't for Kosovo, the euro would be trading between $1.08 and $1.10, and I'd venture to say, it would even be at $1.12," he said.

June euros set the day's low at $1.07550 after German Chancellor Gerhard Schroeder said on Tuesday that Yugoslav proposals brought by Primakov were unacceptable as a basis for negotiations to end the Kosovo conflict.

President Bill Clinton also said NATO allies were "united in our outrage" over what he said were Serb atrocities in Kosovo and vowed the allied air war would continue.

June euros ended below $1.0790, which now signals a decline $1.0674 and to the key $1.0536 area, or about $1.0557 in cash euros, analysts said. The $1.0557 cash euro support level corresponds to 1.85 spot marks, one forex analyst noted. The dollar also found buyers against the yen on position adjusting ahead of Japan's fiscal year end on March 31.

Japan's fiscal year end coincides with the start of the Easter holidays, which will close most European markets from Thursday, April 1 to Monday, April 5. Currency futures pits at the Chicago Mercantile Exchange (CME) will be closed on Friday and will re-open with normal hours on Monday.

At the end of pit trade, June yen was off $0.000014 at $0.008396, euros were down $0.00220 at $1.07620, marks lost $0.0011 at $0.5503, Swiss francs were down $0.0031 at $0.6762, sterling fell $0.0042 at $1.6114, Canadian dollars were up $0.0010 at $0.6616, Australian dollars were down $0.0057 at $0.6261 and Mexican pesos were off $0.000150 at $0.101175. -Reuters