The dollar edged higher against the euro on Wednesday, after a downbeat outlook for European growth prompted investors to buy back the U.S. currency after heavy falls. The yen also slipped on an earthquake in northern Japan and news that a Japanese had been taken hostage in Iraq, but it soon recouped those losses as attention returned to the bearish outlook for the dollar. "There's no change in the overall picture of dollar weakness, and all we're seeing is the market taking a bit of a pause, and waiting for new excuses to drive the dollar further lower," said Shogo Nagaya, forex manager at Nomura Trust and Banking. Most dealers said that worries about mixed U.S. economic data, election uncertainty and a wide and growing current account deficit will continue to keep the dollar on the back foot. As of 0545 GMT, the euro fetched $1.2748 , down around 0.16 percent on the day and about a cent off an eight-month peak of $1.2841 scaled on Tuesday. That peak was less than a cent below a lifetime high of 1.2930 struck in February.
Sterling was up around 0.1 percent at $1.8366 . The dollar jumped after the quake, eventually rising around 0.2 percent to the day's high of 107.16 yen. However, it gave up those gains on profit-taking and settled at around 106.80 , barely changed on the day. The mid-morning quake jolted Niigata prefecture in northern Japan, the same region where a major quake killed at least 31 people on Saturday. There were no immediate reports of major damage from the latest quake but traders said it was a reminder of one of the possible dangers to Japan's economy, which has already been hit by a record 10 typhoons this year. The yen was also hit by light selling in early trade on news that a Japanese in Iraq had been kidnapped by a group led by al Qaeda ally Abu Musab al-Zarqawi. The group said the man would be beheaded if the Japanese government did not withdraw its forces from Iraq, al Jazeera television reported.
DOLLAR TO RESUME FALL?
The euro fell from an eight-month high on Tuesday after German Chancellor Gerhard Schroeder said he had discussed the "worrying" euro/dollar exchange rate relationship with French President Jacques Chirac. The euro was also hurt after the European Commission said the balance of economic risks for the coming two years had shifted to the downside and that further sharp euro gains, which could put the brakes on exports, would make matters worse. Analysts said the market would keep an eye out for any comments on currency from European Central Bank President Jean-Claude Trichet, who is due to speak at a conference in Lisbon at 1700 GMT. "Unless he starts talking about disorderly declines, or anything like that, we probably won't see much reaction," said Naomi Fink, senior currency analyst at BNP Paribas. In his annual report to the European Union parliament earlier this week, Trichet did not speak directly on currencies. That contrasted with his comments in January, when he called the euro's surge "brutal", sending it tumbling. Dealers said it may only be a matter of time before the euro challenges its lifetime high. "I think it (the dollar's rebound) is temporary in nature, and before the presidential election we'll probably try the year high on the euro/dollar around 1.29," said Luke Waddington, head of forex trading at Royal Bank of Scotland. The currency market will take a close look at the typically volatile U.S. durable goods report for September, due at 1230 GMT. Economists' consensus forecast is for a rise of 0.5 percent. Dealers have their eye on the election on Nov. 2. Polls continue to show a tight race between President George W. Bush and his Democratic rival John Kerry. Some say that uncertainty about Kerry's stance on economic policy, and a perception that he would take a tougher stance on currency intervention by Japan, could hurt the dollar. "If Kerry wins the election, the consensus is to just bash the dollar. If Bush wins, it's to sell maybe a little, but be wary of a correction," said a dealer at a U.S. Bank in Tokyo.///