Thursday April 12, 2007 - 20:31:24 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar slumps to 2-yr lows ahead of G7 meeting
FOREX-Dollar slumps to 2-yr lows ahead of G7 meeting
Thu Apr 12, 2007 4:18pm ET29
(Recasts, closes prices)
By Vivianne Rodrigues
NEW YORK, April 12 (Reuters) - The U.S. dollar touched a two-year low against the euro on Thursday and fell against most other major currencies on expectations for euro zone interest rates to rise further in comimg months.
Investors may also have been adjusting some positions ahead of the G7 finance ministers meeting in Washington on Friday where exchange rates are expected to be discussed.
The dollar's decline accelerated when the market interpreted comments by ECB chief Jean-Claude Trichet as meaning the central bank was likely to raise rates in June or beyond to stem higher inflation. The ECB kept its benchmark interest rate unchanged on Thursday though.
"The combination of (Jean-Claude) Trichet's comments and the start of the G7 meeting was more than enough to fuel selling of the dollar," said Samarjit Shankar, a global foreign exchange strategist at Mellon Financial Corp. in Boston.
"The bottom line is that the ECB has room to raise rates, while the Fed in contrast may start easing."
A year ago the dollar tumbled some 7.0 percent against the Japanese yen in a month after the G7 appeared to support a weaker dollar.
In late afternoon trading in New York, the euro was trading up 0.4 percent at $1.3487 after hitting $1.3505 earlier, the highest since January 2005. The euro touched an intra-day record high of $1.3670 in Dec. 30, 2004, according to EBS prices.
The dollar was down 0.25 percent at 119.04 yen , while the euro was trading up on the day at 160.57 yen, retreating from a record peak of 160.86 hit earlier in the session.
"People are just saying going into G7 they don't want to be long dollar/yen ... they are trying to balance their portfolios ahead of the weekend and G7 is on their minds," said Matthew Kassel, director of foreign exchange with ING Capital in New York.
Shankar added he expects European officials to address the dollar's slump during the G7 meeting and in particular mention the strength in the euro against the Japanese yen.
The ECB's task has been complicated by the euro's surge to record highs against the Japanese currency, which euro zone politicians argue gives Japanese exporters an advantage in global markets.
Earlier in the session the euro pared some of its gains versus the yen after Trichet said that a recovery in Japan's economy should be reflected in currency rates.
"With the euro at 160 or higher against the yen and the BOJ having no intention of raising rates, the only way the Europeans can get euro-yen to come down is by delaying their own rate hikes," said Boris Schlossberg, currency strategist at DailyFX.com.
(Additional reporting by David McMahon and Steven C. Johnson in New York)
Â© Reuters 2007. All Rights Reserved.
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