Tokyo: The dollar fell from a nearly four-month high against the yen as investors booked profits from this week’s rally before a gathering of Group of Eight finance ministers in Japan this weekend.
The dollar had staged broad gains this week after anti-inflation talk from Federal Reserve officials, and Thursday’s surprisingly strong retail sales figures added to expectations for Fed interest rate increases this year.
Some analysts said the US currency’s losses would be limited by investors’ expectations for more dollar-supportive comments from US Treasury Secretary Henry Paulson.
Paulson and other finance ministers from eight rich nations will discuss the global economy and soaring oil and food prices at a meeting to prepare for the G8 leaders’ summit in July.
But others said the dollar looked a little overstretched and may face further profit-taking as investors have probably gone too far in pricing in the possibility of three Fed interest rate hikes this year.
“The dollar’s rally against the yen looks as if it has run its course,” said Hideki Amikura, a deputy general manager of forex section at Nomura Trust and Banking.
Amikura said the dollar may weaken further if 13 June’s US data shows that a rise in consumer prices for May was smaller than expected and cools some expectations for Fed rate rises.
The dollar fell 0.2% against the yen from late US trade on Thursday to 107.70 yen stepping back from a nearly four-month high of 108.08 yen hit on 12 June.
The Bank of Japan kept interest rates steady at 0.5% on Friday, as widely expected. Investors were interested in hearing BOJ Governor Masaaki Shirakawa’s views on global inflation when he speaks at post-meeting news conference.
The euro edged up 0.1% to $1.5458 The single currency had been buffeted by comments from officials that suggested the European Central Bank was not about to embark on an extended period of monetary tightening.
Market players were also closely watching the outcome of Ireland’s referendum on the European Union reform treaty, with results expected on 13 June.
The rejection of the EU constitution by France and the Netherlands in 2005 was one factor behind the euro’s fall that year. But analysts are divided on whether the Irish vote will have much of an impact on the single currency this time.
The Australian dollar jumped 0.4% to $0.9406 after Reserve Bank of Australia Governor Glenn Stevens suggested a tight monetary policy remains essential for the country.
Paulson said earlier in the week he would never rule out currency intervention as a potential policy tool to stem the dollar’s slide.
His comments came just after Fed Chairman Ben Bernanke last week surprised the market with a rare warning that a weak dollar was adding to price pressures, signalling to investors a shift in Washington’s view on the dollar.
Market players will look for clues on whether the United States will back its words with action and whether other governments will support intervention when G8 finance ministers gather on Saturday in Osaka, Japan.
The group comprises Britain, Canada, France, Germany, Italy, Japan, the United States and Russia.