With Tokyo markets closed for a holiday, the London and New York markets have absorbed recent developments calmly and have shown little interest in buying dollars as trading has lacked any overall direction. The recent tone of a slightly stronger dollar has been maintained but key technical levels have not been broken.

The outcome of the Presidential elections in Taiwan has caused some tension in the Asian region but has done little to boost dollar/yen. The dollar has traded in a narrow range and is opening today around 106.70 after closing in New York around 106.50.

Expectations that the

European Central Bank's

rate increase last week might provide a basis for a rally in the euro have so far only been modestly borne out. The unit is now trading around $0.9710 with little movement in the past 48 hours.

Already there is talk of a further rate rise in the near future as commentators see an improved euro zone growth rate in the coming year. In a Spanish newspaper, ECB president,

Wim Duisenberg

forecast 3% economic expansion in 2000 and 2001. Euro zone CPI rose 2.0% in February, slightly higher than analysts' forecasts of a 1.9% increase.

Euro/yen has maintained better levels and was trading somewhat firmer at 103.70, marginally above New York's Friday closing of 103.60. This cross should be the major beneficiary of the ECB rate increase and the desire of the Japanese authorities to weaken the yen.

Sterling is losing ground and is trading around eight month lows at $1.5670 after closing on Friday at $1.5730. The pound has now moved to important technical levels and the euro has softened beyond 62 pence on the sterling cross.

So far, expectations that this week's U.K.

Budget Statement

might offer support for the pound through the inflation focus of

Chancellor Gordon Brown

has not been borne out. Sterling has been immobilized by conflicting interpretations, with some observers focussed on the adverse trend in the sterling/dollar interest rate differential while others look at the underlying strength of the U.K. economy.

Stuart Frost, technical analyst at

National Westminster Global Markets

is typical of the view that sterling is headed at least 1% lower with the comment, "euro/sterling targets at 0.6250 and sterling /dollar at $1.55."

The Australian, New Zealand and Canadian dollars remain soft. The common factor is the threat of an impending rate increase in the U.S. The Aussie was recently lower at $0.6055 after seeing lows of $0.6033 in Sydney. Similarly, the NZ dollar was weaker in New York around $0.4825. The U.S. dollar touched $C1.4765 on Friday and is currently trading a little weker around $C1.4695. These currencies are hurt by the possibility of

Fed

tightening next week. Forex traders expect a 25-basis-point increase in U.S. rates on Tuesday.

While the dollar and the euro have slightly more encouraging outlooks than a couple of days ago there is still a broad resistance to holding longer-term positions in these currencies. The ECB action in pushing euro zone interest rates to 3.5% should make the

Bank of Japan's

(BOJ) task of limiting the yen's rise easier and give some added reason to hold the euro.

However technical analysts are unwilling to look to the upside on dollar/yen until certain short- term levels have been seen. As Japanese exporters unwind their positions it is feasible that key levels between 106 and 107.50 will be taken out and a more robust recovery could follow.