NEW YORK, Sept 28: The dollar fell broadly on Friday after a sharp drop in US stocks swept away any favorable disposition investors had had toward the greenback brought on by slightly better than expected September U.S. consumer sentiment and second quarter gross domestic product.
The dollar did find favor against the Japanese yen, albeit within well worn ranges because of investor uncertainty over talk from Japanese officials on banking reform amid the current gathering of ministers and central bankers from Group of Seven industrialized nations in Washington, DC.
But I think trading volume is thin, and that has to do with people not wanting to get too involved with the G7 meeting underway this weekend, he said.
The euro climbed to a session high of 98.10 cents, up 0.35 per cent on the day. The euro had dipped as low as 97.47 cents after the University of Michigan reported its final US consumer sentiment index for September fell to 86.1, beating expectations of 85.9 and down from August’s reading of 87.6.
The drop in sentiment marked the fourth straight monthly decline, as weak stocks, war rhetoric and sluggish economic data tugged the index lower, and signaled the consumer-led US recovery may be at risk. But analysts said currency markets are relatively well positioned for a global slow-growth environment.
The data this week has showed continued slowing, but not as bad as feared, and people are looking at the possibility that we might need more stimulus from the policy side but it’s not a sure thing, said Lisa Finstrom, senior currency analyst at Salomon Smith Barney in New York.
Currencies are pretty well positioned right now.
Earlier, the US Commerce Department revised up its third, estimate of gross domestic product to an annual rate of 1.3 per cent in the second quarter. A month ago, the government put growth at 1.1 per cent.
But signs of sluggishness can also be seen in the euro zone. European Central Bank board member Ernst Welteke, in Washington for the G7 talks, warned of recovery risks in Germany, the euro zone’s biggest economy. Hinting policy action was possible, a day after the ECB left interest rates on hold, Welteke added that monetary policy is adequate.
US stocks fell for the fifth straight week, hurt on Friday by concerns over results at General Electric Co. and tobacco giant Philip Morris Co. Inc..
The Dow Jones industrial average fell 3.7 per cent; the Nasdaq Composite index lost 1.84; the S&P 500 stock index fell 3.23 per cent. The bear market in stocks is already the longest in more than 60 years.
The world’s top economic powers are expected to try to soothe concern that higher oil prices might derail a fragile global recovery. But for currency markets, the focus will be on what the G7 have to say about Japan.
Signs that the Japanese government may be ready to take long-overdue steps to dispose of banks’ mountains of nonperforming loans lifted some of the deep pessimism about Japan that sent the yen tumbling to three-year lows against the euro and three-month lows against the dollar on Monday.
Talk that Financial Services Minister Hakuo Yanagisawa, seen as an obstacle to bank sector reform, may resign circulated in the market. While Yanagisawa has denied the rumors, the Bank of Japan’s decision to buy shares from commercial banks, a controversial effort to prevent financial crisis, has put pressure on the government.
The dollar popped to a session high 123.22 yen after the economic data, but fell back to 122.53 yen, still a gain of 0.43 per cent on the day.
The euro climbed to 120.42 yen before edging back to 120.20 yen, still a gain of 0.84 per cent on the day.—Reuters