Currency Watch: Dollar Steady Despite Nasdaq Drop and a Japanese Political Transition

Traders also feel the interventionist policy of Japan will determine the immediate future path of the yen.
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The dollar has remained steady in directionless trading in New York. Concern over the


record drop

yesterday has been compounded by the uncertainty created in Japan by Prime Minister

Keizo Obuchi's

illness. Earlier today, the entire Japanese cabinet resigned to allow for the appointment of a new prime minister.

Analysts do not see the political issues in Japan as likely to have much effect on the yen, as the main contender (LDP Secretary General

Yoshiro Mori

) is very much a follower of Prime Minister Obuchi. Traders feel that the interventionist policy of the Japanese authorities is the key factor in determining the immediate future path of the yen. Also, traders believe the

Bank of Japan

is determined to defend the 105-yen-per-dollar level. The bank is estimated to have spent about $10 billion in yesterday's interventions.

After recovering to the 100-yen level yesterday, the euro/yen cross has firmed marginally further and lately traded at 100.75. Dollar/yen was steady at 105.40 with some modest buying interest.

The euro has steadied and was recently trading at $0.9565. One treasury manager at a foreign bank in New York said, "It's very quiet. The range on dollar/euro is 0.9520 to 0.9570, and we have touched the upper end twice."

U.K. Trade and Industry Secretary

Stephen Byers

confirmed today that the government's assessment of the county's readiness to join the eurozone would be offered early in the next


. Separately,

Bank of England


Eddie George

gave a bullish assessment of the U.K. economy, saying," the economy as a whole is now again growing at well above trend with inflation a bit below target."

Sterling has remained steady against the dollar and was a little higher at $1.5970. Euro/sterling is at 59.80 pence, and was trading at recent record lows. The Bank of England is expected to leave U.K. interest rates unchanged at the monthly review, which begins later this week.

The highly volatile Swiss franc is again active and has given up some ground from yesterday's New York closing. It was lately trading below opening levels of SF 1.6520.

The Canadian dollar was weaker on the day at $1.4520 with traders commenting on the low activity level in the market. Friday's employment reports in both the U.S. and Canada are seen as important indicators of future movement. The Australian dollar has weakened further to $0.6025 as the market awaits a probable interest-rate increase from the

Reserve Bank of Australia's

policy meeting.

So far, the view that the current sharp, but shallow moves are a product of thin markets and intervention concerns has proved valid. Now that the concerns about the political situation in Japan have been added to the mix, there is little doubt that medium-term players will step to the sidelines. Today, the level of uncertainty is such that activity is almost nonexistent.