25 October 2001, 09:16 Forex - Dollar firmer in midafternoon Tokyo trade on improving demand
TOKYO (AFX-ASIA) - The dollar was firmer in midafternoon trade on
improvement in supply and demand for the US currency, reflecting
continued short-covering by US hedge funds, dealers said.
Nomura Securities foreign exchange manager Takashi Toyohara said
steady increase in purchases of US treasuries by Japanese institutional
investors is also helping improve sentiment towards the dollar.
"Immediate upside target for the dollar is the 123.20 yen, which
was the high after the Bank of Japan further stepped up the monetary
policy at its August policy meeting," he said.
"If this target if broken, then the dollar is likely to test the
125 yen level," he said.
The dollar failed to make clear headway above the 123.00 yen level
due to caution over the outcome of US economic indicators, including
non-farm payroll data, to be released next week, dealers said.
However, Nomura's Toyohara said the market may continue to
disregard weak US economic data, as it did so overnight after the
release of Beige book.
The Federal Reserve Board said in its Beige Book survey of current
economic conditions said that the US economy was weak through
mid-October, as some industries rebounded from Sept 11 but others did
not.
"Business activity recovered quickly from some aspects of the shock
(after the terrorist attacks), such as reduced air cargo capacity, but
longer-term effects are more difficult to assess," the beige book said.
"The market has already factored the likely negative development
following the terrorist attacks, which was evidenced by the fact that
the currency has already recovered the pre-attack level," Toyohara
said.
"Besides, bullish sentiment towards the dollar is likely to
continue as long as there is hope for some economic recovery in the US
thanks to multi-billion stimulus measures," he said.
"In other words, the market has effectively returned to more a
normal market place, which is led by fundamental play," Toyohara added.
The euro was rangebound ahead of today's policy meeting of the
European Central Bank, although the consensus view is that the ECB will
leave interest rates unchanged today, dealers said.
"As the market has already priced in the likely maintenance of the
present monetary policy, the euro is not likely to suffer from sharp
decline," Toyohara said.
The Nomura Securities dealer said the downside for the euro is
seen at 0.8850 usd and 108.50 yen.
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