LONDON, June 3 - The dollar halted its rebound on the euro on Tuesday and held steady versus the yen as the market focused on this week's European Central Bank decision on interest rates, with rising expectations for a cut. The market took in its stride a decision by the Group of Eight nations meeting in France not to mention currencies in their final summit statement, with the world's richest states concentrating instead on an upbeat message for global growth. Investors doubted President George W. Bush's true intent after he expressed support for a strong U.S. currency at the G8 meeting on Monday as he added that foreign exchange markets should determine its value.
"The fact that the U.S. maintains its support for its strong dollar policy while the dollar is falling means that it can continue to fall. We just had a period of profit-taking," said Michael Metcalfe, senior strategist at State Street in London. At 0835 GMT the dollar was steady on the day against the euro at $1.1770 , but down from the previous session's high of $1.1650. It was flat against the yen at 118.62 . The euro was also unchanged against the Japanese currency at 139.62 . The greenback has slid more than 10 percent to all-time lows against the euro this year. Against the yen it is in line with its rate at the start of the year after falling to a two-year low of 115.10 yen in mid-May. But a round of comments from U.S. officials during the G8 summit in France that the long-standing "strong dollar" policy was still in place had little impact on currency markets.
"If the market were to act on what's been said at the summit, the dollar could have gone up to 120 yen. But the market is clearly lacking that kind of dynamism," said a dealer at a major Japanese bank. "And even if it goes to that level, there's quite a lot of exporter offers lined up," he added.
ECB IN FOCUS
With markets broadly expecting the U.S. administration to take a non-interventionist, laissez-faire approach to currency rates, the ECB's monetary policy was coming into focus. ECB President Wim Duisenberg as well as several other top ECB officials and U.S. Federal Reserve chairman Alan Greenspan discuss monetary policy at 1215 GMT on Tuesday at an conference in Berlin. Greenspan is speaking via satellite from Washington. Dealers are still split between a 25 basis point cut at this week's ECB meeting and a 50 basis point cut in the current benchmark refinancing rate at 2.50 percent. Some analysts suggested that Bush may have been hinting that a euro zone interest rate cut could tackle European concern over the euro's relative strength versus the dollar.
German Chancellor Gerhard Schroeder, mindful that the euro's strength might be tamed by an interest rate cut, called for such a move. "With all due respect for the independence of the European Central Bank, we have made clear that there is possibly still room here to stimulate growth," Schroeder, whose economy is hard-hit by the euro's gains, said. Dollar weakness versus the euro and yen, while good for U.S. exports and jobs as U.S. presidential elections loom next year, has raised fears in Europe and Japan that what may help in the United States may choke recovery in Europe and Japan.//