LONDON, Oct 13 - The euro shed one percent against the dollar and yen on Monday after European Central Bank President Wim Duisenberg stoked market suspicions the dollar's recent fall against the single currency had been overdone. After climbing to within a cent of June's record peak on the dollar last week, the euro beat a swift retreat as European traders came on line and Duisenberg pointed out a recent G7 call for more flexible exchange rates did not specify euro/dollar. Analysts said in addition the market was positioning for a raft of U.S. economic data and corporate earnings this week, after a vacuum of economic news from the world's largest economy last week sucked the greenback lower. "Duisenberg is pointing out the idea is to diversify dollar weakness away from the currencies of the regions which are cyclically the weakest, ie the euro zone and Japan," said Steven Pearson, head of currency research at Halifax Bank of Scotland Treasury Services.
"That's causing the market to reassess whether there is a policy agenda to weaken the dollar against the euro. The market has reversed its course quite sharply." The euro's weakness kicked off after an Asian session depleted by a Japanese holiday in which it was relatively stable on the day. But by 1015 GMT it had shed more than one percent to $1.1654 , its lowest for a week and two cents below Thursday's three-month high. It dipped to its lowest for more than a month against the yen at 126.53 yen , also more than one percent down. After hitting a three-year trough last week, the dollar was holding steady half a yen above the low at 108.80 yen . It was also performing better against other European currencies including the Swiss franc and the British pound.
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Duisenberg told reporters in Moscow G7 policymakers had meant to plead for more even burden-sharing among many currencies when they called for more currency flexibility last month. "There was no statement specifically about euro/dollar, that was maybe misunderstood," he said. Instead analysts said he was trying to direct attention to currencies of countries with which the United States has a larger trade deficit, like China and other emerging Asian economies. U.S. President George W. Bush visits Asia this week and next, calling first in Japan on Friday and Saturday and then heading for Bangkok for an Asia Pacific Economic Cooperation meeting on October 20-21. Talk that Bush would press Chinese President Hu Jintao to revalue the yuan when they meet in Bangkok also kept focus on the dollar adjustment, though no immediate action was expected to result. Thin volume was expected on Monday across the globe because of the Columbus Day holiday in the United States, with government offices, banks and fixed-income markets closed. But analysts were looking ahead to a batch of U.S. data this week including U.S. retail sales data on Wednesday, regional Federal Reserve manufacturing surveys on Wednesday and Thursday and Friday's University of Michigan's October consumer sentiment reading.
U.S. quarterly earnings are also due in earnest this week but analysts were divided as to how much lasting support any upbeat news could give the dollar. "I would think generally this is not going to be a great week for the dollar again, even though we're going to see some good releases both on the supply and demand side in the U.S.," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez. "It still seems to me markets are ignoring or have fully discounted this cyclical recovery in the U.S. and are now much more focused back on the structural negatives that remain a key burden on the dollar."//