LONDON, Feb 4 - The dollar retained a weak bias on Wednesday, sticking near the previous session's three-year low against the yen as speculation intensified that Group of Seven finance ministers were unlikely to agree to halt its slide. The euro moved in a limited band but was well supported after data confirmed that business activity in the euro zone's services sector picked up speed despite the euro's appreciation. "In general, they were good numbers," said Shahab Jalinoos, senior currency strategist at ABN Amro. "They confirmed European recovery and convinced the market about the euro's strength." By 1045 GMT, the euro was steady at $1.2550 after gaining one percent the previous day. Traders are ready to compare euro zone activity with U.S. services data. The Institute for Supply Management's (ISM) January index of U.S. non-manufacturing activity and December factory orders are released at 1500 GMT. The Eurozone Business Activity Index rose to 57.3 from 56.6 in December, further evidence that business activity in the region's services sector picked up speed, although it remained below a three-year high of 57.5 in November. Italian consumer inflation hit an 18-month low in January, the latest sign of tame inflationary pressure in Europe. The European Central Bank (ECB) meets on Thursday but is not expected to cut interest rates.
G7 LOOMS
Against the yen, the dollar was steady, standing at 105.35 yen , and not far off a three-year low around 105.20 hit on Tuesday. Broadly the market expects G7 ministers, meeting in Florida later this week, to repeat their September call for flexible exchange regimes. They may also agree to caution against "excessive volatility", reflecting euro zone officials' uneasiness about a rapid rise in the single currency. "The G7 is a big uncertainty. There is conflicting rhetoric coming from G7 officials. They can agree on the status quo and they might make reference to currency stability," said Mary Davis, global currency strategist at CSFB. "If they keep (a reference to "flexibility") in, the yen will see further upward pressure, though Japan will be unhappy about it." Security fears were also weighing on the dollar after news on Tuesday the deadly poison ricin had been found in a U.S. Senate building triggered broad selloff.
USUAL WARNINGS
Despite the G7 call in September, Japan has loudly protested against export-damaging yen strength, with the authorities suspected of intervening to curb yen gains on Tuesday in Tokyo and London. "Unlike the last G7 (in September), when the Japanese authorities refrained from intervening around the time of the meeting, their stance looks pretty different this time," said Hiroyuki Watanabe, forex section manager at Shinsei Bank. Finance Minister Sadakazu Tanigaki and top financial diplomat Zembei Mizoguchi repeated their warnings, saying currency moves should reflect fundamentals and move stably. Government adviser and Mizoguchi's predecessor Haruhiko Kuroda said the impact of a higher yen on the Japanese economy could have significant global implications and the G7 shared Japan's concerns. However, many think Washington is happy with a weaker dollar as it helps problems of disinflation and the current account deficit.//