Vol. 5 Num 215 Fri. December 31, 2004  

Euro hits record high against yen

The euro hit a record high against the yen on Thursday and remained within striking distance of this week's all-time peak versus the dollar. Its bull run looks set to continue in 2005.

The single currency rose above 141.60 yen in thin Tokyo trade, extending Wednesday's gains on technical moves and on concerns that Sunday's devastating tsunami that has killed over 85,000 people around the Indian Ocean could hurt economic growth throughout Asia.

"I think the tragic events that have occurred over the past few days in Southeast Asia may be having an impact on the yen," said Kamal Sharma, foreign exchange strategist at Dresdner Kleinwort Wasserstein..

"There's some investor uncertainty of what the implications for regional growth in that area will be and that's weighing on yen sentiment," he added.

By 6 a.m. EST, the euro stood at 141.20 yen, slightly higher compared with late Wednesday levels in New York, while the dollar was steady at 103.76 yen.

The euro stood at $1.3606 against the dollar, virtually unchanged on the day but close to a record high of $1.3647 set in the previous session, according to data on electronic trading platform EBS.

Sterling recovered a little from Wednesday's 14-month low against the euro after better-than-expected consumer confidence and housing market data.

The euro was unruffled by comments from German Chancellor Gerhard Schroeder, who said in a newspaper article that persistent U.S. dollar weakness is a concern and stability in foreign exchange markets requires a correction of global economic imbalances.

Traders and investors expect the dollar's three-year decline against other major currencies to stretch into a fourth year in 2005 due to long-standing concerns about the United States' ability to attract enough investment to narrow its record current account deficit.

"It looks inevitable that euro/dollar will grind higher. It's more a question of pace than direction. A lot will hinge on U.S. payrolls data next month, it will set the tone," said Daragh Maher, senior currency strategist at Calyon.

"At the beginning of the first quarter I think we'll definitely see euro/dollar at 1.38/1.39," he added.

The euro has risen some 10 percent against the dollar since mid-October, while the greenback is down 6 percent against the yen over that time.

Exchange rates were choppy in thin volume between Christmas and the New Year holiday and investors were hesitant to take big positions.

Japan's Finance Ministry said, as expected, that it did not intervene in the foreign exchange markets in December despite the yen's rise to a five-year high against the U.S. dollar early in the month.

Japanese authorities, who sold 35 trillion yen ($337.3 billion) in 2003 and early this year to curb yen strength to protect exports, regularly warn against rapid rises in the yen.

Earlier this week, Finance Minister Sadakazu Tanigaki said officials would monitor the foreign exchange market over the New Year's holidays.

Markets are also awaiting reports on Thursday, including U.S. jobless claims figures and an index of Chicago-area business conditions, to gauge the strength of the U.S. economy. But economic data releases have mattered little in recent months as the market has focused on the US deficits.