TOKYO: The euro was trading in tight ranges last Thursday after complaints from European officials about its strength against the dollar took some air out of the single currency's upward momentum.

European officials stepped up their rhetoric last week on the euro, making traders cautious about pushing the currency higher ahead of next month's meeting of economic policy-makers from the Group of Seven (G7) industrial countries.

Smaller-than-expected US trade deficit figures last Wednesday also helped support the dollar, traders said.

"Things changed quite a bit last week. The spectre of the G7 coming out with something is keeping people on their toes," said Mitsuo Imaizumi, deputy general manager of international bonds and forex with Daiwa Securities SMBC.

Finance ministers and central bank governors from the G7 nations meet in Florida on February 6-7, and the dollar's broad-based weakness is widely expected to be a major topic.

Although the market was relatively quiet last Thursday, dealers said the euro's movements against the dollar could fluctuate either way in the lead-up to the meeting.

"If the euro goes back up to US$1.27, the market could turn bullish, if it goes down to US$1.25, it could turn bearish," said Toshihiro Azuma, a manager with Sumitomo Trust and Banking.

In the meantime, traders pointed out that the dollar's mild turnaround has mainly been due to repositioning, and that it reflected a gearing down in the speed of the euro's rise.

They added the currency's down trend was set to continue for some time.

European Central Bank council member Christian Noyer became the latest official to express concerns about the euro's appreciation last week.

She said on Wednesday that monetary authorities remained vigilant about the euro's level.

Intervention jitters

The dollar was steady against the yen, hovering around 106.20 yen.

Although it dipped slightly under 106 yen last Wednesday, and came within sight of three-year lows around 105.90 set the previous week, traders said the dollar was underpinned by wariness of yen-selling intervention by the Japanese authorities.

Japan is expected to come under pressure from its peers over its intervention policy when the G7 meets.

Japanese authorities conducted a record 20-trillion-yen (US$188.30-million) intervention programme last year, and are thought to have spent heavily since the start of this year.

Japanese Finance Minister Sadakazu Tanigaki reiterated last Thursday that the dollar's fall was going too far given US economic strength, and that Japan would take appropriate action, as needed, in the currency market.

This view was echoed by Japan's top financial diplomat, Zembei Mizoguchi, who added that foreign exchange markets should be stable and reflect the relative strength of the US economy.

Agencies via Xinhua

(Business Weekly 01/20/2004 page2)