LONDON, Oct 8 - The dollar fell within a cent of all-time lows against the euro on Wednesday on the growing belief it will have to weaken to narrow the U.S. current account deficit and that a fall has official sanction. Comments from European Central Bank President Wim Duisenberg this week that a dollar fall was "unavoidable" have encouraged the view that U.S. and Euro zone policymakers will take a hands-off approach to an orderly decline in the dollar. The dollar hit its lowest levels since mid-June against the euro and the Swiss franc, while the greenback also teetered at three-year lows against the yen for the second day in a row. The falls came amid a dearth of economic data but on the heels of European policymakers' statements, led by Duisenberg. Recent calls from U.S. President George W. Bush for a "level playing field" of currency policies for U.S. companies have added to dollar bearishness that has snowballed since the Group of Seven called last month for increased foreign exchange flexibility. "Markets are giving policymakers what they want," said Adam Cole, senior currency strategist at Credit Agricole Indosuez. "There is a broad consensus that the dollar should go lower, and that's where markets are taking it."
The dollar fell as far as $1.1839 , within a cent of the all-time lows above $1.1930 hit earlier this year. It recovered slightly to $1.1795 by 0930 GMT, still a quarter percent down on the day. A key European Union business group, UNICE, said business could live with the euro's current rate, in contrast to other recent business calls for a weaker single currency. The dollar recovered slightly to 109.70 yen from three-year lows of 109.32 yen set on Tuesday. But the greenback tumbled to 1.3064 francs , its lowest level in more than three months against the Swiss currency. It was also at its lowest for around six years against the Australian dollar and seven years versus the Canadian dollar. Against a basket of currencies, it was at its weakest since January 1997.
G7 STILL HAUNTS
Dealers continue to revisit the September 20 statement by the G7 industrial countries that called for flexibility in exchange rates, putting increasing focus on the U.S. current account deficit as the main adjustment being targeted. The G7 was seen giving a thumbs down to attempts by countries like Japan to stop their currencies rising. They are expected to try to smooth the greenback's fall rather than prevent it. Meanwhile this week's relaxed comments from Duisenberg and European finance ministers about euro strength make betting against the dollar in favour of the single currency a fairly safe one. "With no data out this week, the market is still focused on the theme of the U.S. current account deficit adjustment after the G7," said Niels Christensen, currency strategist at Societe Generale in Paris. "The fact that European policymakers are expressing no concern over the euro's strength is also adding to the euro's move higher." Traders were also nervously awaiting U.S. Treasury Secretary John Snow's appearance at a Senate hearing on foreign exchange policies next week, and a summit meeting of Asia-Pacific Economic Cooperation in Bangkok later this month. Snow also speaks in Washington at 1400 GMT on Wednesday.
TALK, NO ACTION
Japanese officials kept up their jawboning against the yen's export-crimping strength, but traders said that meant little in the face of the dollar's broad-based bearishness and an apparent laissez-faire approach by European and U.S. authorities. Japan's top financial diplomat, Zembei Mizoguchi, said that the decline in the dollar was caused by speculative movements and warned that Tokyo would take action as needed. But he declined to comment on suspected Japanese intervention in New York on Tuesday after the dollar plunged to fresh lows. Finance Mininster Sadakazu Tanigaki said in European trading hours Japan would take decisive action against sudden and speculative movements in currency rates, adding that recent movements in the market had been too rapid.//