Are fledgling silver barons tomorrow''s leaders?

Section:

Dollar off vs. Asia on persistent China speculation

By Jamie McGeever
Reuters
Friday, October 8, 2004

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?
duid=mtfh86071_2004-10-08_17-50-53_n08487080_newsml

NEW YORK -- The dollar tumbled across the board
following a below-consensus U.S. jobs report on
Friday, but the heaviest selling was against Asian
currencies, amid mounting speculation that China
could soon relax its currency controls.

The dollar posted its biggest one-day loss in over a
year against the yen, and despite intervention from
the Hong Kong Monetary Authority, the Hong Kong
dollar surged to its highest level since the end of
February.

"The euro is not the focus: it's Asia," said a senior
trader at a large U.S. bank in New York.

The dollar hit multi-month lows against several rivals
on Friday -- and in the case of the Canadian dollar,
a new 11-year low -- after the Labor Department
said 96,000 new jobs were created last month.
Economists had expected 148,000 new jobs.

But the gains in most major currencies are being
eclipsed by the sharp upticks in Asian currencies,
particularly the yen.

Around 1 p.m. in New York, the dollar was trading
around three-week lows of 109.39 yen, marking the
biggest single-day drop since Sept. 22 last year,
according to Reuters data.

And the Hong Kong Monetary Authority, the
territory's central bank, intervened, selling HK$1.557
billion for U.S. dollars on Friday to maintain the
Hong Kong currency's peg to the greenback.

But "it doesn't seem to have done much good," the
senior trader said, noting that the Hong Kong dollar
was trading at HK$7.7819 per dollar. The currency
is pegged at around HK$7.80 per dollar. Forward
contracts also showed increased bets on some sort
of upward revaluation.

A major factor at play here is China and the mounting
speculation that Beijing may soon loosen the peg
keeping the yuan around 8.28 per dollar. Analysts
generally expect any moves along these lines would
strengthen the yuan and lead to Asian currency
appreciation across the board.

Chinese officials told the Group of Seven finance
ministers and central bankers meeting in Washington
last weekend that they remain on a path toward
adopting a more flexible currency regime. But they
also repeated they will proceed at their own pace
and gave no timetable.

Speculation, however, shows no sign of dissipating.
A Korean newspaper reported China could revalue
the yuan as soon as next week. And the White
House confirmed on Thursday that forex was raised
in President George W. Bush's telephone c
onversation with Chinese President Hu Jintao that
day.

"Speculation is building of a China revaluation," said
a dealer at a Japanese bank in New York. This and
the payrolls data were the two "triggers" that shot
down the dollar on Friday, he added.

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