The dollar had its worst week in three months against the euro on concern the US economy won't recover as quickly as previously thought and as companies lowered earnings forecasts.
"Weakness in the US corporate profit outlook" and comments from Federal Reserve Chairman Alan Greenspan on Wednesday that a US recovery won't come until the end of the year "have made people more risk averse, and so there's not money flowing into the dollar," said Michael Malpede, senior foreign-exchange analyst at Refco Inc in Chicago.
The US currency, which slid 1.9 percent this week, traded at US$0.8711 per euro, compared with US$0.8708 late yesterday. It earlier fell to a two-month low of US$0.8782. The dollar dropped to ?122.96 from ?123.33, down 1.6 percent this week. The yen rose to ?107.13 per euro from ?107.41.
In one sign the recovery may take longer than expected, personal computer sales had their first drop in 15 years last quarter. Waning demand caused by a weaker world economy is leading US companies including Microsoft Corp to cut profit forecasts, damping demand for dollars to buy US stocks.
Traders also cited talk that leaders of the G7 industrialized nations, meeting this weekend in Genoa, Italy, will express concern about the US currency's strength or the euro's weakness. The G7 includes the US, UK, Canada, Germany, France, Italy, and Japan.
"Speculation about the G7 weekend meeting is hurting the sentiment on the strong-dollar story," said Ku Shin, director of Asian analysis for Banc One Capital Markets in Chicago. "Dollar demand is weak right now." Greenspan sparked much of this week's dollar losses on Wednesday, when he said in Congressional testimony that the US slowdown isn't over yet and growth might not rebound until the end of the year. The Fed chairman indicated policy makers stand ready to lower the bank's benchmark lending rate a seventh time this year if the US economy doesn't pick up soon.
Greenspan forecast a US growth rate of as much as 2 percent in 2001 and more than 3 percent in 2002, compared with 3.5 percent last year, according to the Fed's measure of growth.
The slump in the dollar ``has been triggered by Greenspan and his concern about the state of the US economy,'' said Michael Lewis, a currency strategist at Deutsche Bank in London. ``The risk is that numbers in the US will continue to be weaker than expected.'' He sees the dollar slipping to US$0.8850 per euro in coming days.
Even with this week's decline, the US currency remains close to a 15-year high reached July 5 against currencies of the US's major trading partners. That strength has prompted complaints from US manufacturers that it is hurting the economy by making exports more expensive.
Manufacturing and labor groups have pressured President George W. Bush's administration to stem the dollar's strength.
That's led to speculation among investors and traders that policy makers may make comments this weekend designed to weaken the US currency.
Still, Bush has said he'll let the markets sort out the dollar's value, and Treasury Secretary Paul O'Neill reiterated as recently as this week that the US hasn't changed its strong-dollar policy.
"Whether or not people believe in a potential shift in US policy, it's enough of a trigger to get people to cut their dollar holdings," said David Solin, a partner at Foreign Exchange Analytics in Essex, Connecticut.
The yen rose against the dollar and euro, erasing earlier losses, after a Japanese government official said Prime Minister Junichiro Koizumi told other leaders of the Group of Seven that his economic restructuring proposals would go ahead.
Koizumi said at the start of the three-day G7 summit that Japan couldn't wait for a recovery to proceed with his initiatives, which include curbing new bond sales and speeding up the write-off of bad bank debts. The official said other G7 leaders gave Koizumi their support.
"It's a positive statement," for the yen, said Scott Schultz, a currency trader at Brown Brothers Harriman & Co. "It's important for them to take their medicine and move forward."
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