European focus: geopolicy holds USD upsides.[E]

The dollar fell against the yen after Israel bombed Beirut's
international airport tightening intensity in the Middle East.
Its first incursion into Lebanon since 2000 prompted the armed Islamic
group Hezbollah to fire rockets at northern Israel that killed at least
one person. The yen was also supported by speculation the BOJ will lift
its key rate tomorrow for the first time in six years.
The tensions in the Middle East was bearish for the dollar and
otherwise to currencies such as the Swiss franc,'' said Niels From, Dresdner
Kleinwort in London. The market seems nervous?
The yen was sold a bit too much thus recent correction is quite
natural." Said Yuji Saito, Societe Generale SA. There is almost no doubt BOJ
will raise rates tomorrow."
We expect the BOJ will move it's rate by 25 basis points,'' said John
Kyriakopoulos, National Australia Bank. ``Now this has already fully
priced." NAB forecasts the yen will rise to Y108 against the dollar and
to Y137 versus the euro by end-September.
The yen got an extra support on speculation China may raise rates for
the second time in two years this week.
EUR may gain after a government report today showed inflation in
Germany, Europe's largest economy, held at a four- month high in June, adding
to evidence that the ECB will probably take an increasing rate
measures.
This urges rate hikes could accelerate faster than market
expectations,'' said Tsutomu Soma Okasan Securities Co. ``It's euro-bullish.''
EU Monetary Affairs Commissioner Joaquin Almunia said benchmark rates
hike won't damage EU economy.
The economy is strong enough to withstand monetary policy and other
different savings measures adopted in a series of countries,'' Almunia
stressed. What we're faced with in terms of economic problems has
structural causes. Interest rates aren't the reason.''