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Dollar falls after europe urges asia to strengthen currency Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=auH_GUA4csbw&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=auH_GUA4csbw&refer=home
Euro Falls After Europe Urges Stronger Dollar, Asian Currencies
Jan. 25 (Bloomberg) -- The euro fell in Asia after finance ministers of Germany and France urged Asian countries to allow their currencies to strengthen against the dollar.
European officials may seek to end a rally in the euro before a meeting of the Group of Seven nations next month. German Finance Minister Hans Eichel said yesterday that ``Asia must do more for the flexibility of its currencies'' after a meeting with his French counterpart Herve Gaymard. The euro rose 52 percent versus the dollar in the three years to Dec. 31, exceeding the yen's 28 percent advance.
``In the run-up to the G-7 meeting, there will be more calls from European policy makers against a stronger euro,'' said Takashi Toyahara, a currency trader in Tokyo at Nomura Securities Co. ``The euro will be on weaker ground, especially against the yen, on the back of increasing European pressure on Asia.''
The euro declined to 133.84 yen at 1:16 p.m. in Tokyo, from 134.02 late yesterday in New York, according to currency-trading system EBS. The European currency also fell to $1.3025 versus the dollar from $1.3060. It may weaken to $1.30 and 133.50 yen today, Toyahara said.
Japanese Finance Minister Sadakazu Tanigaki said the G-7 will probably maintain support for orderly foreign-exchange movements and flexible currencies when finance ministers and central bankers meet in London, sharing a view yesterday by U.S. Treasury Secretary John Snow.
`Too Big a Share'
Tanigaki also said Japan is closely watching exchange rates and is ready to act in the market if needed. Japan limited its currency's gains by selling a record amount of yen during the year ended March 31, 2004. The euro rose to a record of $1.3666 on Dec. 30. The ECB has never sold its currency.
``Europe has until now paid too big a share in this re- adjustment,'' Gaymard said yesterday in Paris following a meeting with Eichel. His comments echoed those made Jan. 11 by European Central Bank Chief Economist Otmar Issing, who said the euro's gains had gone too far.
The euro's drop versus the dollar accelerated when it breached $1.3030, where preset orders to buy dollars were clustered, said Tsutomu Soma, a trader of derivatives and currencies at Okasan Securities Co. in Tokyo. Traders place such orders to limit losses in case their bets go the wrong way. The euro's decline will gather momentum, should it pass through $1.3 -- a level where more orders to sell are placed, he said.
Any gain in the dollar may be limited by expectations a report today will show U.S. consumer confidence probably fell from a five-month high in January.
The dollar yesterday weakened as low as $1.31 per euro from a two-month high of $1.2922 on Jan. 20 on easing speculation the Federal Reserve will speed up its interest-rate increases.
Downside
The dollar on Jan. 21 declined for the first day in seven versus the euro after a University of Michigan report showed an index of consumer confidence unexpectedly fell. Fed Chairman Alan Greenspan isn't concerned about inflation and is unlikely to accelerate the pace of interest-rate increases, Business Week magazine said in an article on its Web site.
``The risk is more for U.S. data to surprise on the downside, given the weak reading we got recently,'' said Shimpei Uike, an investor of overseas debt at Asahi Life Asset Management, which manages the equivalent of $10.5 billion. ``That will add to already waning speculation the Fed will speed up. There's only so much for the dollar to gain.'' The U.S. currency may trade between $1.2922 and $1.3250 over the next week, he said.
The Conference Board's index likely dropped to 101 this month from 102.3 in December, according to the median estimate of 63 economists surveyed by Bloomberg News. Last month's reading was the highest since July. The report is scheduled for release at 10 a.m. New York time.
`Coordinated Action'
The University of Michigan's preliminary index of consumer sentiment slipped to 95.8 this month from 97.1 in December, the first decline in three months, the report showed on Jan. 21. The Fed Bank of Philadelphia's index of current conditions fell to 13.2, the lowest since July 2003, the bank said on Jan. 20.
The U.S. currency is up 4 percent this year against the euro on expectations the Fed will add to its five interest-rate increases since June. The central bank lifted its target for overnight loans between banks to 2.25 percent from 1 percent. The ECB has left its key rate unchanged at 2 percent since June 2003.
Gaymard said that ``coordinated action based on the pledge of different regions concerned,'' would be on the agenda of the G-7 meeting. The G-7 consists of Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
Eichel said the U.S. current account and budget deficits were the chief causes of the euro's rally against the dollar in the past three years, adding that resolving the U.S. deficits will require efforts also by Europe and Asia.
`Verbal Intervention'
``Europe has to do more for growth and Asia must do more for the flexibility of its currencies in the international context,'' Eichel said.
The G-7 will likely repeat a statement from its meeting February last year in Boca Raton, Florida, that said ``excess volatility and disorderly movements in exchange rates are undesirable,'' Tanigaki said.
``There won't be much change'' from the Boca Raton statement, Tanigaki told reporters in Tokyo.
The yen traded at 102.75 per dollar from 102.63 as Japan's Nikkei 225 Stock Average dropped for a fifth day in six, heading for its lowest close in a month.
``To see what's happening with the yen, look at Japanese stocks, which aren't doing very well right now,'' said Naomi Fink, currency strategist in Tokyo at BNP Paribas SA. ``Verbal intervention is only going to intensify with stocks falling.'' The yen may fall to 103.50 per dollar before the G-7 meeting, she said.
Last Updated: January 24, 2005 23:24 EST
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