By Masayuki Kitano
TOKYO, April 18 (Reuters) - The dollar steadied against the
yen and the euro on Friday, clinging to gains made the previous
day as investors grew more confident about the outlook for the
troubled U.S. financial sector.
The dollar has gained support as earnings reported by major
U.S. banks so far this week, including Merrill Lynch's earnings
announcement on Thursday, have largely been devoid of nasty
shocks. []
With concern about the fallout from the credit market turmoil
ebbing for now, the dollar could soon try for one-month highs
against the yen, traders said.
"Investors are taking more risks, selling the yen," said
Hiroshi Yoshida, a forex trader at Shinkin Central Bank. "It's a
little like what we saw in the heyday of carry trades before the
subprime woes rattled financial markets."
In carry trades, market players use low-yielding currencies
such as the yen to finance buying of assets offering higher
returns elsewhere.
The dollar could rise to above 103 yen if the market's
sentiment turns more optimistic after an earnings announcement by
Citigroup later on Friday, said Akira Kato, senior manager for
Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading
department.
The dollar inched down 0.1 percent to 102.40 yen <JPY=>,
hovering near a one-month high of 102.95 yen hit in early April.
The euro was little changed at $1.5905 <EUR=>, having
retreated from a record high of $1.5985 hit on electronic trading
platform EBS on Thursday.
The euro dipped 0.1 percent to 162.80 yen <EURJPY=R> and
pulled away from a peak of 163.24 yen hit the previous day, which
was the highest since early January.
The euro fell from its high versus the dollar on Thursday due
to remarks by Jean-Claude Juncker, chairman of a group of euro
zone finance ministers, who said that financial markets had
failed to understand the message from the Group of Seven
financial leaders on foreign exchange. []
LITTLE REPRIEVE FOR DOLLAR?
Juncker also said he did not consider the euro's rise against
the dollar was desirable.
In their post-meeting statement issued last Friday, the G7
nations abandoned their long-standing language on currencies and
expressed concern that sharp moves in major currencies could
undermine economic and financial stability.
Despite the relief over earnings announcements by U.S. banks
and the comments by Juncker, however, the scope for any dollar
rebound seems limited for now, traders said.
"It is not as if market players are looking to buy the dollar
actively or to take long dollar positions at this point," said
the head of foreign exchange sales for a U.S. investment bank.
The dollar has been dogged by market expectations for the
U.S. Federal Reserve to lower interest rates further from the
current 2.25 percent later in April.
That has contrasted with expectations for the European
Central Bank to keep rates at 4.0 percent for a while.
"Based on where inflation has been headed and moves in
commodities and oil prices, it is hard to think that we are in a
stage where the euro is set to fall," said Kato at the Bank of
Tokyo-Mitsubishi UFJ, adding that the euro seemed likely to rise
back towards $1.6.
Data this week showed that euro zone inflation rose to a
revised 3.6 percent annual rate in March, a record high.
With inflation running high, the ECB will likely hold off
from lowering rates for a while and to tolerate rises in the euro
to some extent, Kato said.
But the G7 could issue further warnings against foreign
exchange volatility if the euro were to rise rapidly towards
levels such as $1.7, or if the dollar were to drop below 95 yen,
he said.
(Additional reporting by Rika Otsuka; Editing by Brent
Kininmont)
