LONDON, (Reuters):
THE UNITED States dollar retained a firm bias against European currencies yesterday while holding steady on the yen as investors sought clues from U.S. international trade data due later.
Investors remained on alert for yen-selling intervention by Japanese monetary authorities although upward pressure on the yen was alleviated by an unexpected downward revision in Japan's growth data for October-December.
In the absence of major news, analysts said position-adjustment dominated trade.
"People are still unwinding their positions and moves are not happening based on fundamentals. The market is still thinking the Fed will be on hold for longer and wants to sell the dollar, but it is still adjusting to the recent major shakeout in positions," said Mary Davis, global foreign exchange strategist at Credit Suisse First Boston.
MEGA INTERVENTION
"The Bank of Japan's (BOJ) (recent) mega intervention is also helping the dollar. On the U.S. deficit data, you can perhaps see stabilisation but on the year we are unlikely to see substantial improvement."
The dollar stood at US$1.2294 per euro compared with a one-week low of US$1.2461 set on Tuesday. It has gained more than six cents since hitting record lows against the euro at US$1.2927 in the middle of February.
The move to life records had prompted a series of warnings from European policymakers about the painful effect of a strong euro which in turn knocked the euro down.
The dollar was steady against the yen at 111.17.
The U.S. international trade deficit, is expected to have remained steady in January, helped by growing exports and a weakening dollar, while imports, led by a rise in oil prices, rose. The deficit is forecast at US$42.05 billion in January from US$42.5 billion a month ago.
Japan said the economy grew a real 1.6 per cent in October-December from the previous quarter, revising its initial reading of 1.7 per cent released in mid-February. However, it was still the best performance in 13 years.
The growth rate outstripped that of the U.S. economy, which expanded at an annualised 4.1 per cent in the same quarter. The euro zone economy grew 0.3 per cent in the fourth quarter.
BOJ'S HELPING HAND
The Bank of Japan was suspected of intervening on Tuesday after the dollar tumbled towards 110 yen, bringing it back above 111 yen.
"They have intervened even when the yen was weakening which shows deeper resistance to letting the yen rise beyond 110 (per dollar)," said Michael Metcalfe, currency strategist at State Street in London.
Japan has intervened aggressively to curb the yen's export-crimping rise. Its dollar buying has amounted to more than 30 trillion yen since last year.
Bank of Japan governor Toshihiko Fukui said earlier yesterday Japan's intervention policy was consistent with the bank's own efforts to drag the economy out of deflation. He added irregular currency moves were damaging to the economy.
