The dollar fell to a two-month low against the euro and a one-month low against the Swiss franc on Thursday as investors sold the U.S. currency ahead of this Friday's meeting of Group of Seven finance ministers. The yen recovered its poise as oil prices eased off this week's record highs and investors looked ahead to a key survey of Japanese corporate confidence. Friday's meeting of G7 financial leaders in Washington will also be closely watched with investors hungry for comments on the global economic outlook and oil prices. The euro's move was bolstered by options-related activity and nervousness that the forthcoming G7 meeting may call for further greenback depreciation, analysts said. "It's a technical move and opens the way to further upside for the euro. There is also a feeling it is better to be short dollars ahead of G7," said Shahab Jalinoos, senior currrency strategist at ABN AMRO. "The speculative part of the market wants to push the euro higher," he added. The euro rose more than 0.7 percent against the greenback to climb above $1.2400 for the first time since mid-July. The dollar also fell almost one percent to 1.2488 Swiss francs in a matter of minutes.
G7 TALKS
A year ago G7 nations called for greater currency flexibility to iron out imbalances in the global economy. The dollar fell sharply on the statement which was interpreted as a sign the United States wanted a weaker dollar to help reduce its trade deficit. Analysts expect the G7 to signal this time around that patience is needed in future monetary tightening around the world. U.S. interest rates have risen three times since June but recent weak data has raised doubts about the future pace of rate hikes. A German government source said Germany and Britain would present the meeting with an initiative to boost oil market transparency to prevent speculation in the market from inflating the costs of crude. Oil prices dipped further from recent peaks above $50 a barrel, helping Tokyo's Nikkei stock market average snap a nine-day slide and lifting the yen off four-month lows against the euro and six-week lows against the dollar hit earlier this week. Japan relies on imports for all its oil needs and the recent surge in energy costs has weighed heavily on both its currency and its stock market. "The yen came under the cosh earlier this week because of higher oil prices and so the slight retreat has given the yen and the Nikkei a boost," said Paul Robson, foreign exchange strategist at Royal Bank of Canada. The dollar was down 0.4 percent at 110.40 yen while the euro was up 0.2 percent at 137.00 yen .
DATA WATCH
The Bank of Japan's quarterly "tankan" survey, due on Friday, is expected to show corporate sentiment at its highest in more than a decade but also to signal a less robust outlook for the future. U.S. personal income and consumption figures for August are due at 1230 GMT ahead of a survey of business activity in the U.S. Midwest at 1400 GMT. Data out of the euro zone was mixed. Euro zone inflation subsided towards the European Central Bank's goal in September even as consumer and business confidence rose tentatively. Prices paid by consumers rose 2.2 percent from a year earlier in September, a month in which oil prices hit record highs, after rising at a 2.3 percent rate in August.
Japan's Finance Ministry said it did not intervene in the foreign exchanges in September, staying out of the market for a sixth straight month after spending a record amount last year to stem the yen's rise. Japan last stepped into the market on March 16 when the dollar fell almost two yen on the day to around 108.60. Since then, the yen has traded in a range between 103.40 per dollar -- a four-year high -- at the end of March to nearly 115 yen in mid-May. Japan's top government spokesman, Hiroyuki Hosoda, said earlier that currencies were now moving in a stable manner and there was no need to change Tokyo's stance on foreign exchange.///