International | May 18 2006
By Chris Shaw (Tokyo)
Japan had been considered the most likely to intervene in foreign exchange markets to limit the pace at which its currency has been strengthening against the dollar, but it appears the Europeans may have beaten them to the punch.
French finance minister Thierry Breton was quoted overnight as saying everything must be done to stop the euro from rising too much against the US dollar, comments that helped spark a rally for the greenback.
While the euro has not gained as much against the US dollar in recent weeks as the yen has, and while Breton is not directly involved in setting monetary policy, his comments were enough to help push the currency down.
He suggested the European economy could cope with a stronger currency, but it has been the pace of its appreciation over the past few months that has caused concern.
It is a similar story for the Japanese, who prior to the rally in the greenback last night had seen the yen appreciate strongly against the US dollar in recent weeks, prompting speculation the Bank of Japan would intervene to limit the currency to a rate of about 110 to the US dollar.
While such intervention may stem the rate of change, the markets had been moving in response to the view interest rates are near their peak in the US but have further to rise in Europe and Japan.
Events overnight have cast some doubt on this outlook though, as economic figures in the US that indicate inflation is becoming a bigger threat may force the Federal Reserve to lift rates further than had been anticipated, the result being a rally in the US dollar rally against other currencies.
