Feb. 9 (Bloomberg) -- The dollar fell against the euro in London on speculation U.S. interest rates will stay lower than those in Europe, undermining European ministers' efforts at a weekend Group of Seven meeting to curb their currency's rise. After rallying more than a cent in Asian trading following the G-7's call to avoid ``excess volatility,'' the U.S. currency surrendered gains. A U.S. jobs report Friday lowered expectations the Federal Reserve will raise its target interest rate from 1 percent, half the level of the European Central Bank's benchmark.
``The market is going to go its way irrespective of what the G-7 said and continue pushing the dollar lower,'' said Marios Maratheftis, a currency strategist in London at Standard Chartered Plc. ``Economic reasons for dollar weakness are still there.'' Against the euro, the dollar fell to $1.2749 at 9:17 a.m. in London, according to EBS prices, from $1.2706 late Friday in New York, having strengthened to as much as $1.2605. The dollar was at 105.69 yen, from 105.49. The euro has climbed 18 percent versus the dollar over the past 12 months and may rally to $1.31 per euro by the end of April, Maratheftis said. Fifty-seven percent of the 58 strategists, traders and investors surveyed from Tokyo to New York on Friday by Bloomberg News recommended selling the dollar against the euro, a reversal from the 56 percent who said to buy it a week ago. Forty-five percent advised selling the dollar this week against the yen. ``We do not think this is the end of dollar depreciation,'' said Trevor Dinmore, a strategist at Deutsche Bank AG in London, of the G-7 statement. `It is just the end of the beginning.'' Deutsche Bank, the third-largest trader in the currency market, was the most accurate forecaster of exchange rates in the fourth quarter, among 53 companies polled by Bloomberg News.
Fed Outlook
U.S. employers added 112,000 jobs last month, the Labor Department said Friday. The median forecast of 69 economists surveyed by Bloomberg was for an increase of 175,000. Fed chairman Alan Greenspan will testify in Congress this week on the state of the economy and interest rates. ``The G-7 statement doesn't change a thing,'' said Jake Moore, a currency strategist in Tokyo at Barclays Capital Inc. ``Rates are not going up quickly. The labor market is soft, and the dollar will once again test its lows.'' He predicts the euro may gain to $1.30 in the next six weeks. In other trading, the dollar weakened against the British pound, the Swiss franc and the Australian dollar. Gold futures in New York rose in Asian trading.
`Outright Success'
The yen fell after Japanese Finance Minister Sadakazu Tanigaki said the G-7's call for ``more flexibility'' was not aimed at his country, which will act to halt any rapid gains. ``For Japan, the G-7 is an outright success,'' said Jesper Koll, chief Japan analyst in Tokyo at Merrill Lynch & Co. ``It's a full endorsement of their unilateralist intervention policy.'' The Bank of Japan sold a record 5.9 trillion yen ($55.8 billion) last quarter in an effort to prevent the currency's advance from eroding demand for exports. The BOJ sold 1.3 trillion yen on Dec. 10, the fourth-biggest amount sold in a single day.
``Excess volatility and disorderly movements in exchange rates are undesirable for economic growth,'' G-7 ministers and central bankers said in a joint statement. ``We emphasize that more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility.'' Officials from the G-7, which comprises the U.S., Japan, Germany, France, Italy, Britain and Canada, met for two days of talks in Boca Raton, Florida. The euro has climbed 12 percent against the dollar since the previous G-7 meeting in Dubai on Sept. 20, when the group sought ``more flexibility'' in exchange rates. The words ``excessive volatility'' were absent in Dubai.
`Nod of Approval'
Japan's currency has risen as investors outside the country bought assets in the world's second-largest economy, which is emerging from three recessions in the past 12 years. Overseas investors were net buyers of Japanese stocks for a 36th week out of the past 41, the Finance Ministry said last week. Japan will likely prevent its currency from strengthening beyond 105 per dollar by March 31 because its G-7 counterparts won't oppose it seeking to slow the yen's appreciation, Morgan Stanley Japan Ltd. currency strategist Toru Umemoto said. ``Yen-selling is considered to have obtained the G-7's nod of approval,'' he wrote. //www.bloomberg.com