Friday, June 4, 2010

Yen falls as Japan PM quits; euro weak on Noyer remarks

LONDON: The yen fell on Wednesday, June 2 after the resignation of Japanese Prime Minister Yukio Hatoyama, while the euro was weak after European Central Bank board member Christian Noyer said the currency was not "unusually" low.

The yen hit a two-week low against the dollar after Hatoyama and his powerful No 2 resigned to try and boost the ruling party's faltering fortunes in an election next month. His likely successor, Finance Minister Naoto Kan, is seen taking a tougher stance in fighting yen strength.

The euro meanwhile hovered close to a four-year low versus the dollar after Noyer told a German business daily that the single currency's exchange rate against the dollar was at around a 10-year average, which is "by no means an unusually low level".

The euro clawed back some losses, however, after government sources in Brazil, India, Japan and South Korea said they would not stop investing in the weakening currency.

Traders also said investors were wary of renewing short euro positions after taking a hit from the currency's sharp upswing on Tuesday following its slide to a four-year low of $1.2110 on trading platform EBS, though sentiment was still negative.

"The big theme is still one of a weak and vulnerable euro. Very few investors are ready to put on long euro/dollar positions, and any spikes are due to profit taking on short positions," said Niels Christensen, currency strategist at Nordea in Copenhagen.

"The political situation in Japan could give a reason for brief yen selling, but it is likely to be limited because risk aversion is still very much on the table," he added.

At 0807 GMT, the euro was steady against the dollar at $1.2224, looking increasingly vulnerable to another sell-off against the dollar on mounting concern that the euro zone's debt crisis is spreading to its banking system.

Against the yen the euro gained 0.7% to ''112.10, while the dollar rose 0.7% to ''91.61.

"The market may become cautious over the possibility of government moves to restrain yen strength because Kan has shown his preference for a weaker yen," said Masafumi Yamamoto, chief FX strategist in Japan at Barclays Capital.

"But given no signs that business leaders have complained to the current government about a higher yen, the chance of Japanese currency intervention remains very low," Yamamoto said.

Sterling gains
Sterling outperformed, hitting an 18-month high versus the euro, after British insurer Prudential said it was withdrawing from a $35.5 billion deal to buy American International Group Inc's Asian life insurance business.

Traders said Prudential had put in place a series of currency hedges, selling sterling against the dollar, when the initial bid was announced in March and these positions would need to be unwound.

Against the dollar, sterling gained 0.7% to $1.4746.

The US dollar rose 0.1% against a basket of currencies to 86.744, hovering not far below a 15-month high as market players looked ahead to key US jobs data on Friday expected to give more evidence of a strengthening economy. ' Reuters

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