FOREX-G7 gives dlr a boost, fundamentals still weak
LONDON (Reuters) - The dollar rose versus the euro on Monday after the Group of Seven unexpectedly voiced concern about sharp swings in major currencies, but gains were capped by persistent worries about the health of the U.S. economy.
G7 finance ministers and central bankers on Friday said they were concerned about sharp fluctuations in major currencies since their February meeting -- the first time the communique has mentioned major currencies since 2000.
The language carried at least the implied threat that authorities could step in to prop up the dollar through foreign exchange intervention, traders and analysts said, although most doubted that words would turn into action any time soon.
As such, they said it may not be long before market focus returns to fundamentals and thus dollar-selling, with the U.S. economy probably in recession while the European Central Bank more concerned about fighting inflation than boosting growth.
"The initial reaction was in a very thin market, and now with Europe coming in, euro/dollar is creeping up once again, illustrating that not many expect any concrete action behind the G7 statement. No one fears intervention at these levels," said Niels Christensen, FX strategist at Nordea in Copenhagen.
"(So) it's business as usual -- we get a lot of data from the United States this week, but we also get a lot of earnings ... I fear (we will get) more dollar/selling," he added, noting the euro could well break above $1.60 in coming days.
The euro fell as low as $1.5672 EUR= in Asian trading according to Reuters data. But it had recovered most of the losses by 0710 GMT, to trade at $1.5769, down just 0.2 percent on the day EUR=. It hit a record $1.5912 last week.
The dollar eased a third of a percent to 100.61 yen JPY=, while the euro was down 0.5 percent at 158.66 yen EURJPY= -- both around two-week lows.
The Japanese currency benefited from risk aversion, with falls in equity markets making FX investors less willing to put on relatively risky carry trade bets where cheap borrowing in low-yielders such as the yen funds purchases of higher return assets such as the Australian or New Zealand dollars.
The FTSEurofirst 300 index of leading shares lost 0.5 percent in early trade .FTEU3, while Tokyo's Nikkei average closed 3.1 percent lower .N225.
LITTLE REPRIEVE FOR DOLLAR?
Besides the market's reaction to the G7, traders said the dollar would take its cues this week from a slew of U.S. data ECONUS ECON including retail sales, producer prices and consumer prices, as well as quarterly earnings announcements by U.S. banks. [RESF/US].
"The dollar's weak trend doesn't change just because a G7 communique expressed concern about the currency's weakness, as it is based on fundamentals," said Tohru Sasaki, chief forex strategist at JPMorgan Chase Bank.
The Federal Reserve is widely expected to lower interest rates from the current 2.25 percent later in April, adding to 3 percentage points of cuts it has administered since September in a bid to shore up growth.
In contrast market players expect the European Central Bank to keep rates at 4.0 percent for a while. Continued...
