The dollar was weakened somewhat by a drop in stock markets, as the fragility of the U.S. financial system. The shares fell on concern the companies need to raise more capital amid larger than expected losses, shaking the market's hopes that the U.S. credit crunch and economic downturn had left the worst behind it. The current seizure in financial markets is a turning point, said Steve Pearson, c as it shifts attention from the quality of structured products at investment banks to the wider economy.
"Focus going forward is likely to be on the scale of credit impairments delivered by a deteriorating economic cycle," as default rates on loans begin to rise, said Steve Pearson, сhief currency strategist at BoS Treasury.
Meanwhile, the main influence on the euro will be comments from policymakers at the euro zone meeting of finance ministers and the G8 in Japan. The G8 meeting in Japan failed to make an explicit statement on currencies, although there were some echoes of the U.S. having a 'strong dollar policy', but the politicians in the euro zone sounded confident that the European Central Bank will not raise interest rates again in coming months, praising the central bank's determination to keep inflation in check.
Meanwhile, the pound was somewhat weaker against currencies other than the dollar after a bleak survey by the British Chambers of Commerce.
In its Quarterly Economic Survey, the BCC said the "UK business sector is now only a quarter away from technical recession" with orders in both the industrial and services sectors and home sales falling outright during the second quarter.
The survey said the downturn is particularly noticeable in the services sector, which makes up for the bulk of the UK economy, and that it now believes the downturn in the economy will be longer and worse than anticipated so far.