Breach less dramatic than market expected

After several determined attempts, the US dollar broke through 110 yen yesterday, for the first time since January 1994.

The 110 barrier proved a hard one to breach. If it holds, any further gains could be measured in small increments rather than the explosion that some had predicted.

Naoto Kawamura, assistant general manager of foreign exchange and funds at Bank of Tokyo-Mitsubishi in Hong Kong said: 'Eventually, the dollar will move up, but at what speed?' Most forecasts call for the dollar at 112 or even 115 yen with very little downside, once 110 is decisively broken.

After hitting a bottom of 79.75 yen in April 1995, the dollar started to wind its way back up, and has moved in a range of 105-110 yen most of this year.

Mike Powell, head of interest rate desk at HSBC Markets said the market had looked on 110 as the top for months now. Japanese export sales and aggressive dollar sales to prevent the triggering of option knockouts at 110 had effectively kept this level out of reach.

To break decisively above 110, the market had to absorb a lot of natural selling and get past all those option holders protecting that level, Mr Powell said.

Eric Nickerson, who heads Bank of America's currency research team here, warned that the upside may prove elusive for a while.