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Hushed market represses dollar, euro advances

Hushed market represses dollar, euro advances

The dollar declined against the euro and slipped slightly versus the yen Wednesday, even as the euro strengthened against its Japanese counterpart in thin holiday trading.
The greenback disappointed investors hoping the pre-Christmas dollar rally might continue. The Dow Jones Industrial Average went downhill at the beginning of the session and that initially extended the yen's gains on the dollar. The U.S. currency declined versus the euro on positioning and profit-taking. The euro's appreciation against the yen was likewise largely attributable to market conditions, said analysts.
"Ongoing year-end profit-taking and the fact that most of Europe is closed has amplified this kind of volatility. There is a lack of bids in the market, so jumps tend to be more amplified," said Geoffrey Yu, currency strategist at UBS. "In times like this, you tend to have wider spreads, and moves are much wider than usually expected."
While U.S. stock markets were open Wednesday, many of Europe's bourses, as well as financial markets in Canada, Australia, New Zealand and Hong Kong, remained closed for Boxing Day. Trading was exceptionally light due to the holidays, said analysts. By the end of U.S. equity trading, the DJIA had struggled into positive territory, which helped keep the dollar in narrow ranges during most of the New York session.
Dollar weakness might also be attributable to a jump in oil prices, added Yu. The price tags on the two typically have an inverse correlation.
Wednesday afternoon in New York, the euro was at $1.4490, up from $1.4404 late Monday, while the dollar was at 114.31 yen, off from Y114.43. The euro was at 165.66 yen, up from Y164.76, according to EBS. The U.K. pound was at $1.9838, up from $1.9766, and the dollar was quoted at 1.1511 Swiss francs, below1.1575 late Monday.
Sterling remained at depressed levels against the dollar, but recovered from Monday's four-month low of $1.9762 to close higher on the day. However, analysts generally expect the pound to resume its decline when U.K. markets reopen on Thursday.
The Bank of Japan meeting minutes released Tuesday showed board members voted 8-1 to keep monetary policy steady at the Oct. 31 and Nov. 12-13 meetings. Rate-hike hawk Atsushi Mizuno was the sole dissenter, proposing to lift the key overnight lending rate to 0.75 percent from 0.50 percent as he had done since July.
"Some members expressed the view that although the scenario that the U.S. economy is likely to realize a soft landing and gradually move onto a sustainable growth path remains valid, downside risks to the economy have increased somewhat," the minutes said.
Last week at the BOJ board's most recent meeting, even Mizuno didn't call for an immediate rate hike. And after the rate decision, the BOJ also downgraded its core economic assessment for the first time since December 2004.
"We think this reflects the BOJ consensus. Market talk has started to shift from that of a rate hike to a possible rate cut as the Japanese economy softens. However, our base case remains that Japan rates stay steady at the current 0.5 percent for much of 2008," said analysts at Brown Brothers Harriman.
However, in comments Wednesday, BOJ policy board member Hidetoshi Kamezaki ruled out the possibility of a near-term interest rate cut given that Japanese banks have not been seriously hit by the subprime mess and short-term interest rates in Japan remain stable.
"I think it is appropriate to keep interest rates steady now," he said.
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Riva Froymovich and Robert Flint are correspondents for Dow Jones Newswires.


Updated : 2021-03-06 13:20 GMT+08:00