The dollar weakened sharply after the US payroll report, dropping to lows below 114.50. The dollar weakened to lows of 113.75 in Asia on Monday...

... despite a Japanese holiday before recovering back to 114.20.

The Japanese Finance Ministry has
not indicated major concern over the yen's level so far with Finance Minister
Tanigaki stating that moves had been volatile, but within longer-term
fundamentals. Unease over warnings will tend to deter aggressive dollar selling,
but there is no suggestion at this stage of near-term
intervention.

The Chinese monetary authorities
have indicated longer-term plans to diversify foreign exchange reserves away
from the US currency. This remains a potentially important source of strength
for Asian currencies and US dollar weakness, especially in the medium term.
Asian currencies are likely to retain near-term underlying strength which will
underpin the yen. Gains will, however, be curbed by potential central bank
intervention and regional opposition to rapid currency gains.

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