Curency Watch: Yen and Euro Mark Time in Uninspiring Session

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Once again the international currency markets have traded quietly overnight with no clear trends apparent.

The yen remains static around 107.50 and has fluctuated within narrow ranges since yesterday's closing in New York. Briefly, the currency edged above 108 in Asia trading but gave back that gain in later activity. No major moves are expected today.

The euro is also marking time in European trading. Rumors of central bank rate checking as a possible precursor to actual intervention pushed the euro up to $0.9620. However, this boost was quickly reversed and the unit eased back to its current levels just below the figure at $0.9584.

Two items of economic data were absorbed by the market with little impact on exchange rates. Pan-German industrial output rose 0.5% in January, somewhat below market expectations. Euro-zone producer prices rose 0.6% in January for a 5.0% year-on-year gain. This increase was above general expectations. There were signs of some inflationary threat in the data as the index of intermediate goods rose by 0.9%.

In line with the lack of movement in the market even the closely watched euro/yen cross rate remained steady around 103. Traders still see this relationship as the key to possible major trends in the near term.

Sterling continues to look very soft against the dollar. Briefly, the pound eased below $1.57 before moving back to current levels around $1.5740. Once again the dominant concern is the track of U.K. interest rates in relation to those in the United Staes. The

Bank of England's Monetary Policy Committee

is expected to leave U.K. rates unchanged at its meeting on Thursday. In the U.S.,



Alan Greenspan

again warned of possible further rate increases in the near term. This policy difference could lead to identical rates in the two countries and this would be regarded as very negative for the outlook for the pound in the forex market..

The U.K. government would like to see the pound losing ground to the euro and holding steady against the dollar. In fact the trend in recent weeks has been for the reverse of this pattern to occur.

Forex specialists in the London market are generally not optimistic on the immediate outlook for the pound and believe that it offers an attractive sell opportunity at current levels. The trends in the respective countries' interest rate policies seem to be creating the relatively rare circumstance in which sterling can be sold forward against dollars at little or no discount. This obviously makes short sterling positions potentially more rewarding from the trader's perspective.

The key to all of these relationships is the questions overhanging interest rate policy in each of the three locations ¿ the U.S., U.K. and Eurozone. In turn, the U.S. rate outlook is likely to be strongly influenced by the trend in the




. With new data scarce this week it will probably be the U.S. stock markets which will call the tune in the forex world.