27 October 2003 19:33
Yen gains as confidence returns
The yen pushed higher against the dollar and the euro on Monday as a recovery for Japanese stocks following last
week's hefty sell-off buoyed confidence that the stock market rally could continue.
The dollar slipped to a two-week low at Y108.3, close to the three-year lows it fell to earlier this month, but
rallied to Y108.5 by midsession in New York. The euro eased to a week-low at Y127.23 before recovering to Y127.6.
The single currency also recovered from an early slide against the dollar. From $1.186 on Friday, the euro slipped to
$1.1722 in Asian trade, but rallied to trade at $1.1765 in New York.
Daniel Katzive, strategist at UBS, said market positioning was behind Monday's choppy trade.
"There's a general consensus that the dollar is heading lower, but positioning tends to get ahead of
itself," he said, however predicting only temporary pull-backs for the euro against the dollar. "The
likelihood is pull-backs will get cut short with so many investors looking for better levels to buy [euros]," he
added.
There was a sense of anticipation in the foreign exchange markets as investors waited for the outcome of today's
Federal Reserve policy meeting. The Fed is not expected to change interest rates, and market attention will focus on the
accompanying statement. The market perception is that the Fed's efforts to keep bond yields, and thereby long-term
interest rates, low, means the text will be little changed from the previous meeting, where the bank noted the pick-up
in the economy, but emphasised that monetary policy would remain accommodative for some time to come.
"If they provided any hint of policy tightening in the relatively near term, the dollar would gain," said
Mr Katzive who believed, however, the statement would be more "bond friendly."
"If they keep the statement similar, that will be pretty neutral for the dollar," he added. Today,
investors will also look at durable goods orders for September and the Conference Board's survey of consumer
confidence. The Russian rouble provided a focus for currency traders after the arrest of Mikhail Khodorkovsky, the
Russian business leader, sent markets sharply lower.
The dollar rallied from Rbs29.9 to Rbs30.08 before slipping back to Rbs30.05 by the end of the European day, its
gains limited by reported intervention by the central bank.
Callum Henderson, emerging markets economist at Bank of America, said the arrest would make investors think twice
before extending their investments in Russia.
"There's a lot of interest in taking money off the table here," he said. "When you've seen
the gains we've had this year, events like this provide a useful excuse to take profits while they're still
there."
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