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Euro seen vulnerable, dollar rangebound vs yen

TOKYO: The euro drifted above earlier lows against the dollar and the yen in afternoon Tokyo on Monday, but players awaited Europe's participation to set the direction for the beleaguered single currency.

"It looks like the euro is set to test parity against the dollar in the near term, but I also have the impression that it would not be that easy to breach that level," said a Japanese city bank dealer.

The euro fell to as low as $1.0015 in early Asian trade as the absence of any reference to the currency in a statement after Saturday's Group of Seven (G7) meeting of finance ministers bruised sentiment for the year-old currency.

The euro, which later recovered some ground on profit-taking and options-related bids, was still lower against other majors compared with Friday, at $1.0041/51 and 105.31/44 yen from $1.0089 and 105.67 yen in late U.S. trading on Friday.

The dollar traded below 105 yen after touching a high of 105.40 yen in early Asia after the G7 communique was seen lacking the force to alter an overall trend in favour of the yen.

The dollar stood at 104.82/85 yen compared with 104.68 yen in late U.S. trading on Friday.

European officials refrained from verbally assisting the euro on Monday, but voiced optimism regarding the long term outlook of the currency.

"Compared to the lows since the beginning of this year, it's not a major concern," said German Bundesbank President Ernst Welteke, in Tokyo to attend last weekend's G7 meeting.

"It's more or less in Europe a psychological problem to have this weak euro, but the central bank looks for the internal value. That's the aim of the European Central Bank," he told German businessmen in Tokyo.

European Monetary Affairs Commissioner Pedro Solbes said the beleaguered euro ought to be revalued by the market this year.

"We consider that along in the course of the year 2000, the euro ought to be re-evaluated as compared with the yen and probably also the dollar," Solbes told a press luncheon.

"But finally the market will decide."

Traders said the lack of concern among European officials over the current fluctuations in the single currency reflected their confidence in the region's economic recovery.

The G7 communique, in referring to euro zone economies, said: "Recovery of growth is well under way in the euro area."

Regarding the yen, traders attributed the narrow trading range against the dollar to wariness about possible Bank of Japan intervention near 104 yen and Japanese exporter selling above 105 yen.

"The dollar's rise in the early morning was short-lived, so it's obvious that the market is set to try the downside in the near future," the first dealer said.

Players were relieved that the G7 communique included the looked-for reference to concerns about the impact of the yen's strength, but the wording was insufficient to boost the dollar beyond Monday morning's level, traders said.

On the downside, chances for central bank dollar-buying intervention was seen high as the market inferred from the statement that the G7 did not oppose the interventions by the BOJ in recent months.

"The communique doesn't say the G7 would cooperate in a joint intervention, but it shows that the countries accept and understand the situation Japan is in," a trust bank dealer said.-Reuters