War fears weaken the US dollar (page 2 of 2)

But Koizumi denied the report, saying the decision was still a "blank sheet of paper".

Koizumi later said he might select the new governor around February 20.Yen's gains, have been capped after Japan's revelation late last week that it had intervened discretely in January, buying about $6 billion in dollars for yen. Japanese Finance Minister Masajuro Shiokawa said that the intervention was a warning measure.

The markets also took heed of comments by Japan's vice finance minister for international affairs, Zembei Mizoguchi, who said massive intervention on foreign exchange was possible if the market moved rapidly.

Markets were also keeping an eye on North Korean developments, noting Japan had expressed concern about escalating tensions over the communist state's nuclear ambitions. North Korea said that a surprise U.S. attack on its nuclear reactor would spark "total war".

While the yen showed no strong reaction, traders were watching out for any signs of action by Japanese authorities after a senior Finance ministry official declined to comment on rumours of yen selling this week. The country's financial sector has stagnated for over decade.

As Japan is heavily dependent on exports, an overly strong yen is undesirable to policy makers, as it erodes the competitiveness of Japanese exports overseas and eats into profits when translated into yen from foreign currency.

Range for the week: 119.00 -124.00

Sterling

Sterling fell versus the dollar and the euro, after the Bank of England's Monetary Policy Committee (MPC) surprised markets with a 25 basis point cut in interest rates to 3.75 pct. Analysts had forecast the MPC to hold its key rate steady for the 15th month running, for fear of further stimulating a booming housing market.

But the MPC was under pressure to ease amid manufacturing doldrums and job losses. The surprise rate cut was likely to force investors to sell UK assets, mostly stocks, on fear that Britain's economic prospects are increasingly wobbly, hurting the pound in the process.

Economic uncertainty has gradually crept up in Britain after a trickle of weak data signalled cracks in its recently strong performance, undermining confidence. Much of sterling's near-term performance will depend on whether the BOE remains more aggressive than the ECB in future monetary easing, determining which currency will benefit from a more favourable yield.

Range for the week: $ 1.6200 - $ 1.6700.