Dollar slips despite G7 warning
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Foreign exchange markets appear to have ignored a G7 request to avoid "excess volatility."
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LONDON, England -- The dollar slipped to a two-week low against the euro and an 11-year low against sterling despite a call by the Group of Seven industrialized nations for markets to avoid "excess volatility'' in exchange rates.
At 1800 GMT Monday, the euro was at $1.2680 against the dollar in London trading after reaching a two-week high of about $1.2760 in earlier trading. Against the pound, the dollar was trading at $1.8579 -- close to an 11-year low of $1.8593.
Following a weekend meeting in Boca Raton, Florida, the G7 stated in a communique that "excess volatility and disorderly movements in exchange rates are undesirable for economic growth.'' (Full story)
The reference to volatility was seen as a change of emphasis to counter the impact of the G7's call in Dubai last September for "more flexibility'' in exchange rates, which sparked a 10 percent drop in the dollar's value against the euro and rang alarm bells among euro zone officials.
This time, the G7 narrowed its call for currency flexibility to countries "that lack such flexibility.''
"Until the G7 actually starts making noises about absolute levels of euro/dollar or dollar weakness being an issue the market will continue to see a green light to sell dollars,'' Shahab Jalinoos, senior currency strategist at ABN Amro in London, told Reuters.
The dollar has come under pressure due to concern that the U.S. current account deficit is unsustainable and the Bush administration is happy to see it fall to correct that imbalance and boost economic growth ahead of November's presidential elections.
Traders said the G7 shift was aimed at China and other Asian countries that peg their currencies to the U.S. dollar, although speculation simmered over whether Japan, which has engaged in massive dollar-buying intervention in the past year, was also under fire, Reuters reported.
"Some people are saying Japan was the biggest winner from this statement,'' Jalinoos said. "Japan seems to have got implicit OK from the other G7 players to carry on intervening.''
