Friday April 21, 2006 - 22:33:40 GMT
Reuters - www.reuters.com
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FOREX-Dollar falls on G7 draft, diversification fears
FOREX-Dollar falls on G7 draft, diversification fears
Fri Apr 21, 2006 5:50pm ET163
(Recasts, updates prices, adds G7 draft communique, comment)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 21 (Reuters) - The dollar dropped to three-week lows against the yen on Friday after a draft communique from the Group of Seven nations indicated that it was considering singling out China in their call for more flexibility in exchange rates.
The dollar was already under selling pressure after Sweden said it had cut the dollar share in its foreign exchange reserves and Russia's finance minister questioned the dollar's "absolute" preeminence as the global reserve currency.
"We've seen dollar/yen slip on that China comment," said Brian Dolan, director of foreign exchange research at Gain Capital in Bedminster, New Jersey.
The dollar fell to around 116.56 yen -- the lowest since March 28, according to Reuters data -- after the headlines on the draft communique.
A formal call for China to let the yuan move more freely would likely buoy Asian currencies, especially the yen.
"Dollar/yen at this level is breaking an uptrend trendline that dates all the way back to May 2005. This is a very significant daily and weekly close," Dolan said.
Apart from the reference to China, the tone of the draft communique was pretty much as expected, analysts said, as G7 nations noted that "global economic adjustment is a shared responsibility." For details, see [ID:nWBT005176].
he official communique from the G7 meeting was scheduled to be released later Friday evening.
Earlier in the day, Sweden's central bank, the Riksbank, said it had increased the share of euros in its foreign exchange reserves to 50 percent.
The Riksbank's move to increase its euro holdings to 50 percent of its reserves from 37 percent follows comments by Gulf central banks in recent weeks that they are considering increasing the share of the euro in their reserves. [ID:nL2143598]
The Riksbank also said it had cut the dollar's share to 20 percent from 37 percent.
Although Sweden's foreign currency reserves are relatively small, at around $21 billion, the size of the shift was significant, analysts said.
Sweden's announcement was followed by statements from Russian Finance Minister Alexei Kudrin, who told reporters at the G7 sidelines in Washington that the dollar's value had not been very stable in the past several years and said that the U.S. trade deficit was also a cause for worry. [ID:nN21512349]
"That is why we do not understand the U.S. dollar at the moment as the universal or absolute reserve currency," said Kudrin, whose country's gold and foreign exchange reserves at last count totaled $212 billion, the largest of any country outside Asia.
In late afternoon trading, the euro rose 0.2 percent to $1.23406. Earlier, after Kudrin's remarks, it jumped to intraday peaks of $1.2360.
"There seems to be this continuing background beat of central bankers expressing interest in euros, so I think that's providing natural support for the currency," said Lara Rhame, senior currency strategist at Credit Suisse in New York.
The euro was down 0.6 percent at 143.86 yen. Against the Swiss franc, the dollar fell 0.2 percent to 1.2754 francs, while sterling rose 0.2 percent to $1.7815 .
(Additional reporting by Amanda Cooper)
© Reuters 2006. All Rights Reserved.
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