Fri, Apr 11 2008, 15:08 GMT
http://www.afxnews.com
LONDON (Thomson Financial) - The U.S. dollar has been struggling against the yen as risk appetite has fallen following a slide in US stocks, prompted by weak earnings at the world's biggest industrial conglomerate General Electric Co.
GE's profits warning raised fears on the stock markets that the credit crunch is severely impacting the manufacturing sector in the US and is not just a concern among finance companies.
A worse than expected survey into US consumer confidence stoked concerns further. Sentiment, as measured by the Reuters/University of Michigan index, fell to 63.2 in early April from a reading of 69.5 in late March. Economists polled by Thomson's IFR Markets had expected sentiment to fall to 68.0.
"This has fuelled fresh losses in dollar/yen, which has fallen to new session lows of 100.63," said Rhonda Staskow, analyst at Thomson IFR Markets.
Adding to the pressure has been a fall in US ten-year bond yields to session lows of 3.451 percent, Staskow said.
"The US 2-year yield spread over JGBs has collapsed to 113 basis points today, down from 124 basis points yesterday and this is adding to the dollar/yen selling pressure," said Staskow.
The market's main point of interest is this weekend's G7 meeting of finance ministers and central bankers in Washington.
Analysts said that with the focus likely to be on improving liquidity conditions to help ease the economic impact of the credit crunch, currency issues are likely to take a back seat.
Moreover, market participants noted that China is allowing its currency, the yuan, to appreciate relatively quickly -- at an annualised rate of 18 percent in the first quarter of the year.
In addition, a weak dollar will support exports from the near recessionary US and that a strong euro will help dampen down inflationary pressures in the euro zone, to the likely relief of the ECB, which yesterday kept borrowing costs unchanged, in contrast to the Bank of England.
Thursday's comments from Jean-Claude Trichet, the European Central Bank's president, that he deplores volatility in currency markets suggest that the Europeans will at least bang the drum for tighter language in the communique. Overnight, the euro climbed to a new all-time high of 1.5895 dollars.
Despite Trichet's concerns, the U.S. is unlikely to agree to any tougher language and may note that the dollar's rate of collapse has stalled.
"If the G7 fails to harden its language at least on FX volatility then the knee jerk reaction on Monday would likely be to sell the dollar," said Benedikt Germanier, currency strategist.
"Trichet's comments that he deplores FX volatility suggest that at least the Europeans will be arguing for tighter language," he added.
Elsewhere, the euro struck a new all-time high of 0.8037 pounds amid ongoing concerns about the state of the UK economy following yesterday's Bank of England quarter point rate cut.
London 3.40 p.m. London 8.58 a.m.
U.S. dollar
yen 100.91 down from 101.68
Swiss franc 0.9995 down from 1.0017
Euro
U.S. dollar 1.5831 up from 1.5830
yen 159.78 down from 161.00
Swiss franc 1.5831 down from 1.5864
pound 0.8031 up from 0.8009
Pound
U.S. dollar 1.9701 down from 1.9756
yen 199.00 down from 201.03
Swiss franc 1.9703 unchanged 1.9803
Australian dollar
U.S dollar 0.9304 down from 0.9328
pound 0.4722 up from 0.4720
yen 93.97 down from 94.95
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