Clearly intent on showing its determination to discourage further yen strength, overnight the Bank of Japan again bought dollars for yen in Tokyo. The market action was initially quite effective and pushed the dollar up to around 106.20 from 104.80. The dollar is now trading around 105.20 in New York.

Once again the euro has been little affected by the dollar's volatility. At New York opening, the European unit trades close to $0.9690 compared with the closing in New York of $0.9700.

Further support for the euro has been put in place by the announcement from the

European Central Bank

of a 25-basis-point rise in euro zone interest rates at the end of today's policy meeting. Traders believe that this rate increase could push the euro modestly higher and might provide a basis for a more sustained rally. However, even such modest gains as these could be transient if the widely predicted improvement on euro zone economic fundamentals does not appear.

Ian Stannard of

Chase Currency Research

in London said the ECB move "was exactly what the market was expecting." (The move did surprise some observers, though, as

reported earlier.) He looks for a possible euro rally to $0.9730 and then for the currency to be in a position to move higher. Stannard also sees dollar/yen and sterling potentially forming technical bottoms prior to moves to better levels.

Euro/yen has seen little benefit from the Tokyo market action and has held overnight levels near102.

Sterling has remained soft overnight and is trading around $1.5710. Further comments by

Monetary Policy Committee


DeAnne Julius

have suggested that the pound may be strong despite any efforts to weaken it. These comments follow her speech yesterday in which she described Britain as "breaking the pattern of high inflation" and said British industry "will have to get used to living in a strong-currency country." Whatever validity these comments have in the longer term, they seem out of tune with current perceptions in the forex market.

British retail sales for February fell 1.2%, the biggest monthly fall since June 1998. Year on year retail sales grew 4.7%.

The Swiss franc and Australian dollar were steady around SF 1.6640 and $0.6130 respectively. The Canadian dollar is also holding around yesterday's close at $ 1.4685.

In the U.S. the

Producer Price Index

for February rose 1.0% and housing starts increased 1.3%.

Yesterday the


and the


traded in opposite directions, with the Dow up by 320 points while the Nasdaq fell 124 points. Forex traders were not been able to derive much guidance from these contrary patterns and will follow today's equity trading with great interest. If the U.S. equities markets were able to stage a solid rally this would offer support to the dollar and could help to stabilize forex trading at current levels or higher.

Despite the interventions both yesterday and today, BOJ actions so far have not achieved any clear turnaround for the yen and traders have seen the opportunity to resume selling dollar/yen from better levels. As frequently noted here, there are substantial inflows into Japan at this time of the year and intervention may not be able to reverse these flows.

The ECB action in pushing euro-zone interest rates to 3.5% should make the BOJ's task a little easier.

As noted in's

closing report yesterday, the BOJ is now under pressure to repeat its intervention whenever the market pushes the dollar down to levels below 105 yen. No other central bank has so far joined the Japanese authorities in attempting to reverse the yen's appreciation but there is some expectation in the market that this may now happen.