TOKYO, Feb 10 - The dollar hit an 11-year low against the pound on Tuesday as the market acted on the G7's failure to agree coordinated action to stem its decline. The pound spiked to a new 11-year high of $1.8635 while the euro edged up about 0.4 percent to around $1.2735 . It hit a two-week high of $1.2765 on Monday on a perception that the Group of Seven nations are unlikely to make any joint efforts to curb the dollar's fall against the euro. Against the yen, however, the dollar drew support from wariness about Japan's yen-selling intervention as Japanese officials expressed satisfaction with a statement issued after the weekend meeting of G7 finance ministers and central bankers warning against excessive volatility in forex markets.
"The Japanese government appears to think it won G7 endorsement for its intervention," said Kota Kimura, assistant manager at Shinkin Central Bank. "So I'm sure the authorities are full of confidence right now. And few players are willing to take (yen-long) positions." Japan sold a record 20 trillion yen ($189.2 billion) in intervention last year to curb the yen's rise, and a further seven trillion yen last month. Japanese Finance Minister Sadakazu Tanigaki said on Tuesday that G7 countries had made great efforts to make sure their final statement on currencies would not cause misunderstandings in financial markets. "We would like the communique to be read without misunderstandings," Tanigaki told reporters. "We paid great attention to making sure the communique accurately reflected our views, but of course we can't be sure how the market will take it." As of 0300 GMT, the dollar held steady from late New York levels around 105.70 yen .
G7 STATEMENT
The G7's "please all" statement, which included both a warning against excess volatility in currency markets and a call for more flexibility in exchange rates, left room for the market to ponder. "I think the G7's message was that they are happy with the current forex levels but they don't want to see a further rapid decline in the dollar," said Satoshi Tokuda, forex manager at Sumitomo Corp. Although euro zone finance ministers said after they met on Monday that they did not discuss intervention in currency markets, some think European policy-makers' patience may soon run out as the euro soars. "Some people are considering the chance of European intervention," said Kimura of Shinkin Bank. "So they are buying the British pound and the Australian dollar instead." Others think the dollar will continue to fall given the huge U.S. current account deficit and the prospect of continued low interest rates in the United States. "The G7 didn't provide any clear direction. In other words, the gradual decline in the dollar is likely to continue," said Kenji Kobayashi, a senior manager at the foreign exchange and treasury division at Bank of Tokyo-Mitsubishi. With the G7 meeting out of the way, the market's focus was shifting to Federal Reserve Chairman Alan Greenspan's semiannual testimony on the economy before a House of Representatives panel on Wednesday. He is also scheduled to appear before the Senate Banking Committee on Thursday. "If he talks about raising interest rates, that'll put a brake on the dollar's fall. But with the (presidential election) coming up, I don't think that's very likely," said Tokyo-Mitsubishi's Kobayashi.//