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After yesterday's attention to the problems of the euro, the forex market has switched its focus back to the yen.

In Tokyo dollar/yen moved to significantly higher levels and traded at 107.40, a full yen above the New York close. The dollar rally is seen as partially a spillover from the U.S. currency's strength yesterday vs. the European currencies. And the continuing softness in the


(which closed this morning below 18,000 for the first time in 18 months) has cast some doubt on the appeal of Japanese securities.

While the

European Central Bank

decision yesterday to raise its refinancing rate to 3.75% has not yet had any positive effect on the euro, the unit has now stabilized after the 2% fall on Thursday. The euro is opening at $0.9090, above the lowest levels seen yesterday. The yen's softness means that the euro/yen cross has improved slightly to 97.50 after seeing new lows at 96.55.


Commission of the European Union

has now contributed its comments to the euro support effort. "Everything leads us to believe the euro is a stable and strong currency," said a spokesman for the EU executive.

Dollar/Swiss franc has maintained its recent weak tone and is opening at 1.7270 after touching highs in European trading of 1.7385. The Swiss currency is suffering along with the euro and is even more exposed to speculative flows.

Sterling has lost ground in London with a dampening of expectations for near term rate rises in the U.K. The pound was also hurt by new data showing that Britain's first-quarter

gross domestic product

grew only 0.4% compared with 0.8% in the previous period. In general the predicted scenario in which U.K. interest rates remain flat while U.S. rates move higher seems to be likely. This pattern would create a negative differential from the pound's perspective and would tend to push the currency lower.

In New York the pound is opening at $1.5675 after closing yesterday at $1.5725. Euro/sterling has edged higher to 58.05 after seeing new record lows at 57.40 pence on Thursday.

"GDP figures were much weaker than expected and the manufacturing sector is getting into trouble," said Derek Halpenny of

Bank of Tokyo Mitsubishi

in London. In regard to the outlook for U.K. interest rates, Halpenny is uncertain but comes down on the side of a further rise next month. "It's such a close call," he said. "There are lots of arguments that they could stay on hold but I think they may still move."

U.S. dollar/Canadian dollar continues to bounce around without any real direction. At the New York opening it is trading at C$1.4815 after dipping lower overnight.

Signs of major currency problems in Poland are becoming more ominous. The zloty has lost 3.3% of its value vs. the dollar since the currency was floated on April 12. A growing trade deficit coupled with an unstable financial market has created a potentially dangerous imbalance. Local interest rates in Poland are 14 percentage points above euro levels and have attracted huge inflows of short-term foreign capital.

The Australian dollar continues to trade lower and eased overnight to around $0.5840.