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Criminal investigation sought in Citibank''s German bond manipulation scheme

Section: Daily Dispatches

By Taizo Hirose
Bloomberg News Service
Tuesday, January 25, 2005

TOKYO -- The euro halted a two-day gain against the dollar in Europe
after finance ministers of Germany and France said before a meeting
of Group of Seven countries next month that their currency's rally
had gone too far.

"Europe has until now paid too big a share" in absorbing the dollar's
decline, French Finance Minister Herve Gaymard said yesterday after
talks with his German counterpart, Hans Eichel. The euro rose 52
percent versus the dollar in the three years to Dec. 31, exceeding
the yen's 28 percent rally.

"In the run-up to the G-7 meeting, there will be more calls from
European policy makers against a stronger euro," said Takashi
Toyahara, a currency trader in Tokyo at Nomura Securities Co. "The
euro will be on weaker ground."

The euro was at $1.3043 as 6:15 a.m. in London, from $1.3060 late
yesterday in New York, according to currency-trading system EBS. It
earlier fell to $1.3005. Europe's common currency was also at 134.10
yen, from 134.02. It may weaken to $1.30 and 133.50 yen today,
Toyahara said.

Japanese Finance Minister Sadakazu Tanigaki said the G-7 will
probably maintain support for orderly foreign-exchange movements and
flexible currencies when finance ministers and central bankers meet
in London on Feb. 4 and 5.

After discussions in Boca Raton, Florida, last February, the G- 7
said it discourages excess volatility, disorderly market moves, and
inflexible currency policies, such as those practiced by China. Asked
in an interview yesterday if he expected that view to change at the
meeting next month, U.S. Treasury Secretary John Snow said, "I
wouldn't anticipate that at all."

Tanigaki also said Japan is closely watching exchange rates and is
ready to act in the market if needed. Japan limited its currency's
gains by selling a record amount of yen during the year ended March
31, 2004. The euro rose to a record of $1.3666 on Dec. 30. The ECB
has never sold its currency.

European Central Bank Chief Economist Otmar Issing also said on Jan.
11 that the euro's gains had gone too far.

Any gain in the dollar may be limited by expectations a report today
will show U.S. consumer confidence fell from a five- month high in
January. The U.S. currency on Jan. 21 fell for the first day in seven
versus the euro after a University of Michigan report showed an index
of consumer confidence unexpectedly fell.

The dollar yesterday weakened as low as $1.31 per euro from a two-
month high of $1.2922 on Jan. 20 on easing speculation the Federal
Reserve will speed up its interest-rate increases.

"The risk is more for U.S. data to surprise on the downside," said
Shimpei Uike, an investor of overseas debt at Asahi Life Asset
Management, which manages the equivalent of $10.5 billion. "That will
add to already waning speculation the Fed will speed up. There's only
so much for the dollar to gain." The U.S. currency may trade between
$1.2922 and $1.3250 over the next week, he said.

The Conference Board's index likely dropped to 101 this month from
102.3 in December, according to the median estimate of 63 economists
surveyed by Bloomberg News. Last month's reading was the highest
since July. The report is due at 10 a.m. New York time.

The U.S. currency is up 4 percent this year against the euro on
expectations the Fed will add to its five interest-rate increases
since June. The central bank lifted its target for overnight loans
between banks to 2.25 percent from 1 percent. The ECB has left its
key rate unchanged at 2 percent since June 2003.

Gaymard said "coordinated action based on the pledge of different
regions concerned" would be on the agenda of the G-7 meeting. Canada,
France, Germany, Italy, Japan, the U.K., and the U.S. are members of
the G-7.

Eichel said the U.S. current account and budget deficits were the
chief causes of the euro's rally against the dollar in the past three
years, adding that resolving the U.S. shortfalls will require efforts
also by Europe and Asia.

The yen traded at 102.78 per dollar from 102.63 as Japan's Nikkei 225
Stock Average dropped for a fifth day in six.

"To see what's happening with the yen, look at Japanese stocks, which
aren't doing very well right now," said Naomi Fink, currency
strategist in Tokyo at BNP Paribas SA. "Verbal intervention is only
going to intensify with stocks falling." The yen may fall to 103.50
per dollar before the G-7 meeting, she said.


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