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US dollar down against yen, euro in volatile trading

The US dollar was lower against its major rivals on Friday after a day of choppy trading.

The greenback started the New York session sharply lower, with the euro, pound and Swiss franc touching fresh one-year highs overnight and the yen tapping its highest levels in eight months.

The dollar then alternately surged and dipped in the wake of a narrower-than-expected US trade deficit for March, but the data were not strong enough for the US currency to sustain any gains by the end of the session.

Late in New York, the euro was at US$1.2921, up from US$1.2839 late Thursday, according to EBS. The US dollar was at ¥110.06, weaker than ¥110.63 late Thursday. The euro was around ¥142.17, compared with ¥141.84, and the dollar was quoted at CHF1.1978, compared with CHF1.2155 late Thursday. Sterling was trading at US$1.8935, up from US$1.8792.

"The US trade deficit for March was smaller than expected, and while there are positive [GDP] implications, the implications for the dollar are minor," said Marc Chandler, global head of currency research at Brown Brothers Harriman in New York.

Chandler said that given the widespread dollar bearishness in the market, it is hard for the greenback to sustain any strength.

"The short-term market is keen to sell into dollar upticks. Sentiment remains extremely poor," he said.

Snap-back likely

Still, in the face of the dollar's sharp losses this week, talk is increasing about a growing likelihood of a snap-back for the US currency. After the US dollar failed to strengthen following the Federal Reserve policy statement, which the market viewed as somewhat hawkish, and the US Treasury opted not to name China a currency manipulator, many had suspected something like a solid trade figure could resuscitate the US dollar.

"The fact that many market participants have been looking for the correction for well over a week implies the market has not been positioned for this type of move down in the dollar," Robert Lynch, a currency strategist at HSBC in New York said. "And that in itself is a contributor to the current dollar selloff."

Investors are mixed on just what it will take for the dollar to correct, with some awaiting vocal protests from a Group of Seven country official and others looking for a correction from the price action itself.

Indeed, as the yen continues to strengthen against the US dollar, many analysts have speculated that Japan, which traditionally has been particularly vocal about the appreciation of its currency, will likely be the first country to speak out about the US dollar's decline.

Japanese Finance Minister Sadakazu Tanigaki reiterated on Friday that sharp foreign exchange rate moves are "undesirable," but stopped short of describing the yen's move as excessive.

He repeated that there is no change in Japan's foreign exchange stance, which is based on the Group of Seven leading nations' agreement that exchange rates should move in a way that reflects economic fundamentals.

Affecting firms

When asked at a regular press conference on Friday about growing views that a fall in the dollar below the psychologically important ¥110.00 line could hurt corporate profits, Tanigaki said there is "no doubt" that sharp US dollar/yen falls would affect companies.

The finance minister has continued to say that excessive foreign exchange rate volatility is "undesirable" and that the government is watching the market, but he has refrained from warning that Tokyo will "take appropriate action" in exchange markets if needed, a phrase that was frequently used when the Ministry of Finance was intervening heavily in the market for 15 months until March 2004.

Elsewhere, European Central Bank officials continue to sound hawkish amid speculation that the ECB could raise rates by 50 basis points next month rather than the 25 basis points expected.
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