Dollar mostly lower as G7 leaders gather and U.S. stocks wither
Apr 11, 2008 Market Outlook
Dollar mostly lower as G7 meets
Weak stocks, consumer sentiment data undermine greenback
By William L. Watts & Lisa Twaronite, MarketWatch
Last Update: 3:33 PM ET Apr 11, 2008
SAN FRANCISCO (MarketWatch) — The dollar was off session lows but remained
mostly down Friday, with stocks solidly in negative territory and data rekindling
fears about the outlook for the U.S. economy.
The dollar index, which tracks the greenback against a basket of currencies, was
at 71.938, down from 72.148 in late North American trading Thursday but above its
session low of 71.696.
Not even tougher-than-usual rhetoric from a European financial leader that the
euro is “overvalued” in foreign exchange markets relative to the currencies of
its major trading partners could sap the European’s unit’s strength.
Joaquin Almunia, the EU economic and financial affairs commissioner, made the
remarks Friday while attending the Group of Seven finance ministers and central
bankers in Washington.
Almunia also said he was confident that the euro-zone would be able to avoid a
recession. His blunt message on the euro was a clear escalation in the rhetoric
from European financial leaders about the rising level of the euro versus the
dollar and is a sign of growing impatience. Euro-zone officials have raised
concerns about the strong euro’s impact on exporters.
Earlier Friday, the Michigan sentiment index undermined the dollar. Consumer
confidence sunk to its lowest level in 26 years in early April, according to a
report from University of Michigan/Reuters, as worries about the economy,
unemployment and inflation deflated hopes for future.
U.S. consumer sentiment index fell to 63.2 in early April from 69.5 in March.
Sentiment is at its lowest level since March 1982. Economists surveyed by
MarketWatch were looking for an April result of 68.8. See Economic Report.
Click for Detail
“The report also notes that there have been only a dozen lower readings recorded
in the more than 50-year history of the survey. Many of the underlying indices
fell to their worst levels in a quarter-century,” wrote RBS Greenwich Capital
senior economist Michelle Girard.
Current and expected personal finances dropped to their lowest readings since
November 1982 and April 1980, respectively, she said.
A separate set of data from the Labor Department showed a surge in the price of
imported petroleum pushed up prices of goods imported into the U.S. by 2.8% in
March, the biggest increase since November 2007. Economists surveyed by
MarketWatch had been on the lookout for March import prices rising by 2.2%. See
Economic Report.
Click for Detail
On Wall Street, stock investors reacted to General Electric Co.’s earnings miss
and reduced forecast, with all three major indexes lower in afternoon trading.
See Market Snapshot.
Click for Detail
Stock market weakness saps risk appetite, and typically benefits lower-yielding
currencies like the yen.
The dollar was at 100.85 yen, down from 101.84 yen late Thursday but above its
Friday low of 100.63 yen.
The euro was at $1.5824, above $1.5741 late Thursday but off an earlier high of
$1.5854. See real-time currency prices.
Click for Detail
The pound was at $1.9714, up from $1.9710 late Thursday,
The dollar’s weakness, however, was not pervasive, as it gained against its
Canadian counterpart. One dollar bought C$1.0224, up 0.3%.
Few G7 expectations
Currency strategists said there was little expectation that G7 officials, now
gathering in Washington, would be able to come together on language or actions
designed to arrest the dollar’s fall.
While euro-zone officials have raised concerns about the strong euro’s impact on
exporters, prospects for further interest-rate cuts by the U.S. Federal Reserve
and the European Central Bank’s reaffirmation of a steady monetary-policy stance
offer an unfavorable backdrop for effective intervention, some experts say. See
full story.
Click for Detail
Japanese Finance Minister Fukushiro Nukaga said Friday that G7 officials would
discuss foreign exchange rates and that officials shared the view that excessive
volatility is undesirable and undercuts global economic growth, news reports
said.
Strategists at Commerzbank said they expect the G7’s joint statement to be little
changed from previous communiqu?s, which warned against excess volatility and
disorderly markets but made no explicit mention of the weak dollar while instead
focusing on calls for China to allow the yuan currency to appreciate.
“China is allowing the yuan to appreciate relatively quickly, a weak dollar
supports U.S. exports and a strong euro at least partially dampens inflationary
pressure in the euro zone,” they wrote.
Traders may be reluctant to push the euro much higher ahead of the G7 meeting,
but the single currency is likely to soon make a further run toward the $1.60
level, they said.
Other strategists said a surprise shouldn’t be ruled out.
“With the euro-zone contingent possibly coming to the end of its tether over the
relentless appreciation of the euro … the prospect of some surprise or other
should not be discounted,” said Neil Mellor, currency strategist with Bank of New
York Mellon.
ECB focus on inflation
Meanwhile, economists read ECB President Jean-Claude Trichet’s remarks from
Thursday’s monthly news conference as showing slightly more concern about
euro-zone growth prospects. That said, the remarks offered no indication the ECB
is likely to begin trimming rates substantially given Trichet’s reiteration of
worries about surging near-term inflation pressures.
Consumer inflation in the euro-zone rose at an annualized rate of 3.5% in March,
well above the ECB’s medium-term target of a rate near but less than 2%.
“It still seems unlikely to us that there will be any change in the ECB’s policy
rate before the summer recess, given such significant inflation rates as are
being recorded at present,” wrote Julian Callow, chief European economist at
Barclays Capital. “We continue to look for rate cuts in September and December in
our baseline scenario, though the risk, in our view, is still that cuts could
come later or perhaps not even at all this year.”
Meanwhile, the policy statement issued by the Bank of England’s Monetary Policy
Committee Thursday left economists guessing about the timing of future rate cuts.
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Tags: Consumer Confidence, Consumer Sentiment Index, Dollar Index, Economic Report, Escalation, Euro Zone, Finance Ministers, Financial Affairs, Financial Leader, Financial Leaders, Foreign Exchange Markets, G7 Leaders, Greenback, Joaquin Almunia, Lows, Major Trading Partners, Michigan Sentiment Index, Negative Territory, Reuters, Sentiment Data
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