NEW YORK, Dec 21: The dollar was in holiday-mode on Friday, trading in small ranges as investors prepared their books for year-end while digesting the U.S. declaration that Iraq violated a UN weapons resolution.
Earlier, the dollar was bid up against the yen after Japanese Finance Minister Masajuro Shiokawa said the yen was overvalued and his ministry would take action if necessary, though authorities were not thinking of intervening right now.
Currency investors shrugged off a final report showing third-quarter gross domestic product, the gauge of total US economic activity, rose 4 per cent, as expected. Enthusiasm about the solid third quarter has been tempered in the closing months of the year by a sharp slowdown in some economic indicators, fanning concerns about the recovery.
The prevailing concerns are economic growth and Iraq and the rest of the numbers don’t really mean a lot. The looming potential for war with Iraq is weighing on the dollar, said Tod Van Name, senior vice president in the FX Group at Mizuho Corporate Bank in New York.
The dollar was unable to hold modest gains inspired by Shiokawa’s statement, falling back toward one-month lows. In late New York trade, one dollar bought 120.37 yen, down 0.09 per cent from Thursday’s close and off a session high of 120.99 yen. For the week, the dollar fell just slightly.
Shiokawa also said dollar/yen should be at 150 under a purchasing power parity scenario — a means of comparing living standards among various nations — quite a distance from the current level of around 121 yen.
While dealers shrugged off the comment — few currencies actually trade at that theoretical level — they said the finance chief’s comments were consistent with Japan’s efforts to guard against export-busting strength in the yen.
We continue to get a barrage of yen-speak, said Lara Rhame, foreign exchange economist at Brown Brothers Harriman.
But that does not mean authorities are ready to intervene, she said.
There’s a big difference between the Bank of Japan intervening when it is the yen that is strong, and intervening when there is a worldwide bearish trend against the dollar, she said.
The euro also fell slightly against the yen, trading at 123.61 yen, off 0.07 per cent on the day.—Reuters