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Currencies: Market Continues Its Struggle for Direction

Currencies are little changed in quiet action. A Japanese official lends further support to a possible rate hike.
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There is still little sign of direction in forex markets. Overnight the dollar has traded in a narrow range across the board with only a modestly softer tone.

"It's been pretty quiet," said Matthew Clements of

Prebon Yamane

in London. "Euro/dollar rose a bit but then it's fallen back. There's a certain nervousness about

Greenspan's speech this afternoon

U.K. time and that's having some effect."

Fed Chairman Alan Greenspan is set to address the

National Governors Association

this morning.

At this morning's opening, the euro is marginally down at $0.9530 compared with last night's close at $0.9550.


European Central Bank

allotted funds at an average rate of 4.30% at its auction today. This was in line with market expectation.

ECB board member

Tommaso Padoa-Schioppa

has claimed that the euro is already a success. "The euro is accepted as a reality," he said. "It is here to stay in euroland."

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Dollar/yen is fractionally lower 106.75. The yen is being helped by rising expectations that the

Bank of Japan

will end its zero-interest-rate policy at its July 17 meeting.

Further comments suggesting an interest-rate rise were made by the minister in charge of Japan's

Economic Planning Agency


Taichi Sakaiya

. "Ending the zero-rate policy would not have a serious macroeconomic impact as long as short-term rates are nearly at zero. But we should seriously consider the short-term psychological impact on financial markets," he said.

This amounted to an endorsement of the policy change, as Sakaiya was already on the record saying that it was too early for such a change.

The euro/yen cross rate is lower at 101.75.

The pound is steady against the dollar at $1.5120 and the euro is unchanged vs. the pound at 63.00 pence.

Underlying inflation in the U.K. rose to an annual rate of 2.2% in June from the May level of 2.0%. Despite this increase, inflation is still running well below the government's target of 2.5% per year.

"The general direction for the pound is positive and also for the euro," said Clements. "This was on the back of a slower U.S. economy, and that's being reassessed."

Dollar/Swiss franc is firmer at 1.6280. The euro is steady vs. the Swiss franc at SF1.5520.

U.S. dollar/Canada is a little down from yesterday's closing levels at C$1.4765.

The Australian dollar is drifting lower again and is opening at $0.5890. The currency was not helped by the overnight publication of some positive economic and business confidence data. The New Zealand dollar is lower at $0.4595.

The South African rand is opening firmer at 6.79.

The Mexican peso is firmer at 9.44.

The Polish zloty is continuing to hold better levels on positive economic data and is opening at 4.26 per dollar. Today, the currency was boosted by expectations of inflows from privatization sales.

The Indonesian rupiah is lower at 9,315.