Foreign Exchange Dollar Falls Vs. Yen Essay, Research Paper

Foreign Exchange

Dollar Falls vs. Yen, Stays Flat vs. Others

As Traders Await Fed Move, Japan Data

By Jennifer M. Barrett

03/21/2000

The Wall Street Journal

(Copyright (c) 2000, Dow Jones & Company, Inc.)

NEW YORK — The dollar retreated against the yen but barely budged against major

European currencies in thin trading ahead of the Federal Reserve’s Open Market Committee

meeting today.

With Tokyo closed for the Vernal Equinox holiday and traders awaiting today’s Fed meeting

and the release of new Japanese trade data late yesterday, dealers said dollar-yen trading

was particularly light.

A flurry of dollar-buying helped the U.S. currency make a brief break out of its 106-yen

range as trading kicked off in New York. But the dollar had barely exceeded the 107-yen

mark when it was beaten back by strong chart resistance. After struggling to stay above

the intraday low of 106.28 yen midway through the New York session, the dollar was at

106.45 yen late yesterday, down from 106.66 yen at the start of the session and 106.79

yen late Friday.

Japan was slated to release its January business-activity index and February trade surplus

just before midnight. Analysts expect an increase in both.

The euro had nudged up to 97.29 cents from 97.20 cents late Friday.

The pound was trading at $1.5690, down from $1.5735 late Friday in New York. Sterling has

slipped nearly 3% against the dollar since the start of the year. The release today of the

2000-2001 United Kingdom budget is not expected to have much effect on the currency.

While a projected interest-rate hike by the Fed should provide support in the longer term for

the dollar, it is unlikely to have a noticeable effect on intraday spot trading unless it

exceeds 0.25 of a percentage point. Analysts said a change of that proportion has already

been priced into the market.

If any currency is likely to register much reaction to a U.S. rate increase it is the Canadian

dollar. The Canadian currency has tended to jump after recent Fed actions on expectations

the Bank of Canada will follow with similar increases.

The Canadian dollar could use the boost. It ended last week at its lowest levels of the year.

It was trading slightly higher yesterday, with the U.S. dollar buying 1.4696 Canadian dollars

compared with 1.4710 late Friday.

After dropping nearly 1% against the U.S. currency this month, analysts say the Canadian

dollar may finally turn the corner this week. Canada’s January trade surplus, due out today,

is expected to have expanded by at least C$200 million from the month before, to C$2.9

billion from C$2.7 billion for December.

Though Canada’s consumer-price index, released last week, revealed a slight increase — to

a 1.6% yearly pace from 1.4% in January — that figure still is at the bottom of the Bank of

Canada’s 1% to 3% target range.

Nonetheless, while many analysts say a rate increase is not needed, they believe the BOC

will approve one if the Fed moves today, in order to prevent a widening gap between U.S.

and Canadian yields.

There is continued speculation that the European Central Bank might also raise rates again

next week, particularly after new euro-zone consumer-price-index data released late last

week showed inflation in the region for February reached 2% year-over-year growth-the

ECB’s ceiling for price stability.

Still, talk has subsided somewhat after comments by ECB president Wim Duisenberg. Mr.

Duisenberg said that after the ECB’s 0.25 percentage-point raise Thursday, euro-zone

interest rates are “appropriate for the present situation” despite continued price pressure.

He emphasized that the ECB’s enemy is inflation rather than a weak currency, and that the

exchange rate is not a direct target of the ECB’s actions

Foreign Exchange

Dollar Rises Against Yen as Japan’s

Central Bank Acts to Weaken Currency

By Jennifer Barrett

03/09/2000

The Wall Street Journal

Page C21

(Copyright (c) 2000, Dow Jones & Company, Inc.)

NEW YORK — The dollar jumped more than one yen after the Bank of Japan intervened to

weaken the Japanese currency early in the Asian trading day.

Traders estimated Japan’s central bank bought between $1 billion and $3 billion in two

interventions overnight. The actions pushed the dollar as high as 107.50 yen early in the

trading day.

Japanese corporate repatriation ahead of the fiscal year end may partly explain the yen’s

current popularity, but it isn’t likely the driving force. Dealers said the currency also has

attracted sustained interest from speculators, portfolio managers as well as corporate

buyers.

With the Nikkei 225-stock index trading at around 20000, and Japanese officials predicting

economic expansion, Asia is looking increasingly attractive to foreign investors, they said.

The Bank of Japan intervention was seen more as a buying opportunity than the start of a

weakening trend for the yen, with the market dumping euros in droves to buy yen after the

bank’s action. The euro plunged to a record just below 101 yen before it rebounded in New

York.

“Euro/yen is the playground of speculators and does not represent economic

fundamentals,” said Jeremy Fand, chief foreign-exchange strategist at Fleet Global Markets

in Boston.

Nonetheless, the euro/yen sell-off shows few signs of slowing.

John Cholakis, a dealer at Dai-Ichi Kangyo Bank in New York, said the euro could drop to

100 yen by week’s end, as the European currency comes under continued pressure from

the dollar and pound in addition to the yen.

Late in New York, the dollar was trading at 107.20 yen, up from 106.17 yen late Tuesday.

The euro was at 96.08 cents, up from 95.95 cents late Tuesday.

Rumors of European Central Bank intervention around the 95-cent level may have sparked

some interest in the European currency, but the market still seems divided on the

currency’s direction. “This is a pivotal point,” said a currency options dealer. “Some say we

could go to 90 cents, others say we can go to parity. The market is still very nervous.”

Widening differentials are likely to hurt the euro further. Analysts expect another U.S.

interest-rate increase by month’s end, particularly after the Federal Reserve’s latest beige

book reported “appreciable expansion” in the U.S. economy from January through

February.

Early last week, Europe’s common currency plunged to a record of 93.90 cents after it

became apparent that the European Central Bank wouldn’t raise interest rates at its

midweek meeting. Although the euro was trading yesterday two cents above its all-time

lows, analysts aren’t ruling out the possibility of a return to those earlier levels — especially

if the Fed raises rates as expected in late March.

The Australian dollar rose to 60.92 cents late in New York from 60.50 cents late Tuesday.

The Australian Reserve Bank said yesterday that it had opted to leave interest rates

unchanged.

The South African rand retraced earlier losses against the dollar. It ended the New York

session at 6.4685 rand to the dollar, compared with 6.5315 rand late Tuesday. Steven

Leach, chief economist for Citibank’s foreign-exchange desk in New York, wasn’t surprised

by the rand’s reversal. He said the South African currency, which is still down more than

5% against the dollar for the year, has been undervalued at recent levels.

The dollar also slipped further against the Mexican peso, as the Mexican stock market

surged more than 3.6%. Late yesterday, the dollar was buying 9.269 pesos, compared with

9.28 pesos late Tuesday.