FOREX-Yen pares gains after jumping on yuan revaluation
TOKYO, July 22 - The yen fell sharply on Friday, giving back almost half of its hefty gains scored a day earlier when China ditched the yuan’s peg to the dollar, as the initial excitement over Beijing’s long-awaited currency shift subsided.A day after the yen posted its biggest one-day jump against the dollar in more than three years, investors took a step back to see how much higher China would let the yuan rise after switching its decade-old dollar peg to a currency basket.The yen, which has often been bought as a proxy bet on an appreciation in the yuan and Asian currencies, retreated as Japanese importers and investors took advantage of the two-yen tumble to pick up dollars on the cheap. Some were sceptical that the move would be enough to derail the dollar’s rally this year that has been driven by the Federal Reserve’s steady and ongoing interest rate rises.
” There’s a lot of uncertainty about what this all means,” said Katsunori Kitakura, a senior forex manager at Chuo Mitsui Trust and Banking. ” My gut feeling is that the yen’s initial reaction to the move was a bit of an overshoot.”
Still, some analysts said the Japanese currency was set to make further gains, partly due to a perception that the long-awaited revaluation — an unexpectedly small 2.1 percent — was likely only a first step for China.
” I don’t think there’s anybody out there who thinks this is the end for China,” said Junya Tanase, forex strategist at JPMorgan Chase. ” We could see this yen strength continue for several weeks.”
JPMorgan estimates the yuan will climb 7 percent against the dollar by the end of December and 15 percent by the end of 2006. Under the new rules, the yuan will be allowed to move 0.3 percent each day against the dollar compared with the prior day’s close.
The official China Daily said in an editorial on Friday that there would be no significant further revaluation of the yuan. In early trading on Friday, the yuan did not appreciate beyond 8.11 per dolla.
The dollar was up around 0.8 percent at 111.10 yen as of 0420 GMT, after it plunged more than two yen on Thursday to as low as 109.87.
The yen and other Asian currencies also got a boost on Thursday after Malaysia said in the wake of the China move that it had changed the ringgit peg to a managed float.
The dollar had struck a 14-month high just above 113.70 yen earlier in the week, helped by the prospect of further rises in U.S. interest rates.
CENTRAL BANKS EYED
After keeping the yuan virtually fixed at 8.28 per dollar since 1996, China said it was adjusting the currency’s value to 8.11 and tying it to a basket of currencies of the country’s main trading partners.
The move was widely expected to prompt other Asian countries, many of which compete with China in export markets, to scale back dollar buying intervention aimed at stemming the appreciation of their currencies.
But the Hong Kong Monetary Authority and the Monetary Authority of Singapore both said on Thursday that they would maintain their current foreign exchange policies.
Traders will keep a close eye on Japanese authorities, who have not intervened in foreign exchange markets since March 2004 but warned on Thursday they would take ” appropriate action” if there were any rapid moves in the yen.
The euro was up almost 1 percent at 135.25 yen after it fell by more than two yen to as low as around 133.60 on Thursday.
The single European currency was little changed at $1.2170 after climbing 0.2 percent on Thursday.
Although China has not disclosed the composition of its new currency basket, analysts say it likely includes the euro, yen, sterling, Swiss franc and the Australian dollar.
State Street said in a research note that China’s action could add momentum to moves by Asian central banks to diversify their huge foreign reserves away from the dollar into other currencies, which would be ” clearly negative for the dollar” .
Sterling was little moved at around $1.7530, after it jumped about 0.8 percent the previous day.
Investors barely reacted to news that British transport officials closed London Underground lines after a series of explosions on Thursday.
The explosions come in the wake of deadly blasts that killed more than 50 people in London earlier in the month.
Written by admin on July 22nd, 2005 with
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