Dollar falls on lower growth (page 1 of 2)

Euro

At the start of the week, the dollar retreated further against the euro from the previous week's levels as signs of deceleration in the pace of U.S. economic growth emerged.

The single currency hardly reacted to comments from the European Central Bank Chief Jean-Claude at a press conference following the G7 meeting, where he stated that the ECB has no plans to cut interest rates despite sluggish euro zone growth.

Later in the week, the dollar lost ground versus the euro after lower-than-expected U.S. inflation and housing data indicated that the Federal Reserve might not quicken the pace of interest rates increases anytime soon.

U.S. core producer prices (PPI), which strip out energy and food items, edged up just 0.1 pct in March, slightly below forecasts of 0.2 pct. Meanwhile, U.S. housing starts slipped 17.6 pct in March, the steepest drop in 14 years.

However, the euro fell slightly after a survey by Germany's ZEW institute reported that investor confidence had fallen to its lowest level since December.

Unlike PPI, U.S. consumer prices (CPI) rose 0.6 pct in March from 0.4 pct in February, bolstering expectations that the Fed will continue to raise its rates. Meanwhile, The Fed's Chairman Alan Greenspan said that the United States is not heading towards the stagflation typical of the 1970s, but it risked economic stagnation "or worse" unless lawmakers curb huge budget deficits.

As the week progressed, the dollar trimmed its losses against the euro, boosted by a stronger-than-expected reading of manufacturing data that eased concerns about slowing growth in U.S. The Philadelphia Fed's index, a regional gauge of manufacturing, surged to 25.3 in April from 11.4 in March, above market's expectations for a reading of 10.

In addition, the dollar drew some support from an unexpected drop in U.S. jobless claims that fell to 296,000, the lowest level since early February and the biggest weekly fall in over three years.

Week ahead, market will focus on U.S. consumer confidence and growth data for further clues on the health of the United States. While in Europe, April's Ifo business climate index in Germany will be closely watched after a recent survey from the ZEW institute showed the largest decline in business sentiment in Europe's biggest economy since December.

Range for this week: $1.2900-$1.3200

Yen

The Japanese yen clawed higher at the beginning of the week on a statement from the G7 finance ministers after their weekend meeting, in which they repeated a 14-month-old call for "more flexibility" in exchange rates, widely viewed as a veiled reference to China's pegged yuan.

A revaluation of the Chinese yuan is expected to send the dollar lower against a broad range of Asian currencies. During the week, U.S. and Japanese officials increased the pressure on China to revalue its currency. U.S. Treasury Secretary John Snow said China is "ready now" to adopt a more flexible currency.

He also added ensuring that China moves to a more flexible currency is one of the Bush administration's highest international economic policy priorities. Meanwhile, Japanese Finance Minister Sadakuzu Tanigaki said that he hoped China would adopt a more flexible foreign exchange policy but that it was up to China to decide.

The Fed's Chairman also joined the chorus of US officials who are calling for flexible currency in China and stated that growing economic pressure will compel China to alter its currency policy at some point, and the sooner its happens the better.