TOKYO, Feb. 28 (Kyodo) — The U.S. dollar may rise above the 110 yen line for the first time in three months next week as speculative investors are expected to try to bring it up to that level.
Dealers and market watchers said the dollar is expected to move between 108.00 yen and 110.50 yen.
This week in Tokyo, the U.S. currency traded between a low of 108.04 yen, logged Wednesday, and a high of 109.70 yen, registered Friday.
The dollar continued to gain ground against the yen in the past week as foreign hedge funds aggressively bought it back.
It also benefited from speculation that the European Central Bank (ECB) may cut interest rates or conduct euro-selling interventions to halt the dollar’s decline against the euro, which sent the dollar to a three-month high of 109.84 yen Thursday in New York.
Although the dollar retreated Friday to briefly trade in the 108 yen level in Tokyo due to yen buying caused by sharp gains in Japanese stocks, dealers said the dollar buyback trend is likely to continue for a while.
”Investors running short-term funds seem to have a strong appetite for the dollar for the moment,” said Yasushi Ishikawa, manager of the financial engineering team at Credit Lyonnais.
”But in a long term, I think the dollar remains weak in light of huge twin U.S. deficits and the presidential election in November,” he said.
The twin deficits are the U.S. current-account and budget deficits. The U.S. presidential election is seen by some market players as a dollar-weakening factor as the current administration may want to keep the U.S. currency from rising to favor automakers and other manufacturers in the country.
Should the dollar retake the 110 yen line, it will be the first time since Dec. 1 in Tokyo.
Some dealers said it will not be so easy for the dollar to recover the line as Japanese exporters are expected to sell it ahead of the March 31 book-closing.
But Keizo Tanaka, a dealer at Resona Bank, said exporters’ dollar sales will not be very sizable.
”Many exporters have already sold the dollar when the dollar traded in the 106-107 yen levels,” he said.
Next week, the ECB will hold its policy-setting Governing Council meeting Thursday.
Some market players believe the European Central Bank may discuss cutting interest rates at that meeting to put a lid on the euro’s advance.
The single European currency, which soared against the dollar by more than 15% in 2003, has remained high so far this year and hit an all-time high above $1.29 earlier this month.
But Credit Lyonnais’ Ishikawa said a rate cut by the ECB is unlikely.
”For the ECB, changing a rate because of fluctuations in foreign exchange rates would be the same as denying its maxim in deciding monetary policy,” he said. The bank’s maxim is setting interest rates in accordance with inflation risks, according to Ishikawa.
The market will also pay close attention to U.S. employment data for February, due out Friday, dealers and analysts said.
