The US dollar traded up to 131.70 yen on Friday in thin European dealings, its highest level since April 1992, dealers said.At 1115 GMT, the dollar was trading at 131.70/80 compared with 130.17/20 in late European trading on Wednesday.
Dealers said the dollar rose on Friday amid on-going concern over the economic troubles of Asian countries. The New Year holiday period in Japan is also seen reducing the threat of Bank of Japan intervention to stem yen weakness. Traders said the dollar hit two-week highs against the yen, 3-1/2-month highs against the mark and two-month highs against the Swiss franc on uncertainty over the economic crisis in Asia.
It's a flight to quality, and there is a big question mark over the effect of the Far East, said Peter Wood, forex dealer at Bank of Boston in London. We know what the effect is on Japan but we're not sure about Europe. Germany is the biggest creditor to South Korea.
At 0845 GMT, dollar/yen was trading at 131.25/35 from 130.17/20 late in European trading on Wednesday. Dollar/mark rose to 1.8042/47 from 1.7918/25, and mark/yen cross edged up to 72.79/81 from 72.68/71.
On Thursday, South Korean president-elect Kim Dae-jung warned of continued hardships in the year ahead in his New Year speech after South Korea's economy was ravaged by major corporate collapses in 1997 that culminated in a severe financial crisis.
The IMF, along with global industrial powers, came to South Korea's rescue in December with a $60 billion bail-out package to stabilise the nation's economy.
In Japan, a weak economy and a credit crunch in 1997 led to the failure of some of Japan's major corporations, and is expected to continue weighing on the yen. Traders said as a result of expectations for stable inflation and continued steady growth in the United States, the dollar will continue to gain ground on its safe-haven status.
Dollar/yen is expected to continue to probing higher in Europe on Friday amid a smaller threat of Bank of Japan intervention with Japan out for its New Year holiday. The unit was expected to re-test its multi-year December high of 131.56 yen in the near-term but faces heavy resistance there.
Dollar/mark was well bid around 1.8040, but dealers said stop-losses exist around 1.8050 to 1.8080.
I think 1.8050-80 is probably the top-out region for the next couple of weeks," one dealer said.
Bundesbank president Hans Tietmeyer said on Wednesday in an end-of-year commentary published in Handelsblatt that the level of European interest rates in 1998 would be determined by the choice of members of Europe's monetary union and by prevailing economic conditions. He said the European interest rate should be oriented towards the low rates in the core EU countries and towards maintaining stability ahead of monetary union.
De facto monetary union for Europe starts in May when the participants will be chosen and conversion rates fixed. The project is scheduled to be formally launched on January 1, 1999.
