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Updating time :     14/11/2006 19:33 GMT

Dollar falls against yen but remains relatively firm versus euro after Villepin comments

Dollar fell against the Japanese yen on Tuesday, weighed down by solid Japan GDP data and soft U.S. inflation and consumer sending reports, the latter bolstering the view that the U.S. economic slowdown remains intact. However, the greenback maintained a relatively firm undertone against the single currency mainly due to French Prime Minister Dominique de Villepin, who called for more collaboration among Eurozone monetary authorities on managing the exchange rate. Some investors interpreted the remarks as calls for a weaker euro.  
  
Euro rose to 1.2872 initially after U.S. October core PPI and retail sales fell by 0.9% and 0.4% m/m respectively. However, it then tumbled to 1.2790 after the dovish comments by French Prime Minister. Usd/chf also briefly dropped to 1.2386 before rebounding strongly to register an intra-day high of 1.2872. Traders did not react to the news of soft German ZEW sentiment index for November (-28.5 vs. the forecast of -25.0) released in European morning session.  
  
Cable fell briefly from 1.9051 to 1.8957 after U.K. inflation data turned out to be slightly weaker-than-expectations. However, it then rebounded to 1.9039 after the soft U.S. economic data before tumbling again to an intra-day low of 1.8925 in mid-morning U.S. session on fears of a politicalisation of the euro policy.  
  
Agaisnt the yen, the dollar fell to 117.25 on the back of soft U.S. economic data before stabilising on option defensive buying. Earlier in the day, Usd/jpy plunged after a report showed Japan's economy grew by a 2% annualized rate in Q3 (market expectation was 1%).   
  
Data to be released on Wednesday include New Zealand retail sales, Australia house prices, Swiss PPI, U.K. employment report, eurozone industrial production, U.S. Empire state manufacturing index and FOMC meeting minutes.

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