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Section: Daily Dispatches

By Veronica Brown
Reuters
Friday, January 20, 2006

http://today.reuters.co.uk/investing/financeArticle.aspx?
type=usDollarRpt&storyID=URI:urn:newsml:reuters.com:20060120:MTFH0828
6_2006-01-20_13-15-04_L20778244:1

LONDON -- The dollar shuttled in ranges against the euro and Swiss
franc on Friday, after Iran's central bank governor was quoted as
saying Iran was transferring assets from its foreign accounts,
raising concerns about risk aversion.

A senior Iranian official later confirmed that Iran was transferring
its assets from European accounts to other foreign banks.

But the yen gained against the greenback and euro after the Bank of
Japan governor sounded upbeat on the prospect of ending the central
bank's ultra-easy monetary policy.

Political and event risk have emerged as a market theme this year as
Iran's atomic programme raised global objections that could result
in U.N. economic sanctions.

"Clearly the Iran situation is the key focus at the moment, our view
is that eventually it will settle down, but it's expected to rumble
on for a while and so maybe at the margins slightly supportive of
the safe-haven currencies like the Swiss Franc," Kevin Grice, senior
economist at American Express Bank, said.

Barclays Capital foreign exchange strategist Adarsh Sinha said that
Iran, as an oil exporter, has sizeable reserves.

"The problem is we have no information as to what the composition of
the reserves are. Even though they have said they are transferring
money to different accounts we don't have a good handle on what that
means -- it could be a strategic thing that any Middle Eastern
exporter would do, diversifying from dollars," he said.

The euro spiked up around 20 ticks after initial news of the Iranian
asset transfer, before settling back to trade at $1.2071 by 1254
GMT, down 0.20 percent on the day. The Swiss franc was steady at
1.2844 per dollar, having gained sharply earlier.

The yen hit the day's highs of 115.16 per dollar after Bank of Japan
Governor Toshihiko Fukui's comments, but remained well within its
recent 114-116 range, with option-related hedging seen helping to
keep it in that band.

The dollar was last at 115.23 yen, down 0.16 percent on the day. The
euro weakened to 139.12 yen, down a third of a percent from the U.S.
close.

Richmond Federal Reserve Bank President Jeffrey Lacker, repeating
remarks he made earlier this week, said on Friday the U.S. central
bank must prevent inflation expectations from taking root.

Lacker, a voting member of the U.S. central bank's policy-setting
committee this year, forecast growth of around 3.5 percent in 2006
and also cautioned that once the Fed halts its 18-month policy-
tightening campaign, interest rates won't simply go on hold, but
will vary over time.

The Federal Open Market Committee's run of 13-straight rate rises
since mid-2004, which took the federal funds rate to 4.25 percent,
helped to drive the dollar's rally last year.

The market sees a rate increase at the end of the month as a done
deal but views are split over the path beyond that.

San Francisco Fed President Janet Yellen said on Thursday the
central bank was close to the mid-point of a theoretical "neutral
range" of 3.5 percent to 5.5 percent for the funds rate.

The University of Michigan consumer sentiment index at 1445 GTM is
forecast to show a rise to 92.5 in January from 91.5 in December.

The yen rose against the dollar and the euro after BOJ Governor
Toshihiko Fukui said his thoughts on a policy shift had moved
forward since December.

He also repeated that the possibility of ending the BOJ's
quantitative easing policy of flooding the banking system with
excess funds would increase over the course of the fiscal year
starting in April.

The BOJ also said on Friday the Japanese economy was recovering more
strongly than it had forecast in an outlook report issued three
months ago.

The BOJ left policy unchanged, as expected, but investors are
looking to an end to the central bank's five-year- old policy of
near-zero interest rates.

"There was an upgrade in the economic assessment by the BOJ and
comments from governor Fukui. From that point of view an end to the
zero interest rate policy is coming closer," said Carsten Fritsch,
currency strategist at Commerzbank in Frankfurt.

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----------------------------------------------------

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