The dollar is ever-so slightly weaker on Monday with the dollar index dipping into the red after the Istanbul chapter of the G7 meeting concluded with a similar prevailing statement. It was strong on tone, yet short in any action statement and to an extent invites investors to test the dollar's lines of resistance in order to see what response, if any, might be forthcoming in the event of a further fall in the value of the dollar.
The dollar's 10% loss of value during the past six months continues to be a cause for concern amongst finance chiefs. They maintained their perspective that disorderly sings in currency markets threaten economic and financial stability. However, their warning, as on many occasions, appears to be one without backbone. Many currency traders were braced for some hint of intervention to prevail from this meeting especially given several verbal warnings or complaints from central bankers and politicians who had warned against dollar weakness.
A stronger domestic currency is the flipside for many nations who are faced with trying to nurture recovery only to see a weaker dollar bolster the fortunes of its own unit of currency. Canadian and French ministers recently voiced concern over the perils of U.S. dollar weakness.
The service sector diffusion indices continue to reflect healthy economic conditions. Today the Markit service and manufacturing index for the European area added to the August reading of 50.4 as it increased to 51.1 and so indicated further expansion. The euro today has been hovering slightly above $1.46 to the dollar.
The U.K. Markit service sector index rose to 55.3 from 54.1 for its best showing in two years. The pound failed to get much of a boost from the survey as investors continued to remain cautious over the health of the financial sector. The pound is weaker against the dollar at $1.5918 as investors await news later in the week, which may indicate a decline in the pace of house price expansion. In addition to sterling's weakness against the dollar, the pound also cheapened to 91.74 pennies per euro.
The G7 stance appeared to provide a green light for investors waiting to buy the dip on the commodity currencies. The Canadian dollar gained to 93/16 U.S. pennies while the Australian dollar rose to 87.46 cents. The gains appear to be based upon the toothless nature of the G7 statement, which seems powerless to deter investors from buying currencies exposed to recovery. The energy markets were a little lower today, but that didn't seem to deter investors from wanting to hold the currencies of resource-rich nations.
The Australian service sector index was also reported to be higher than was forecast with a 49.3 reading. To all intents and purposes this sector is now at a standstill as opposed to in outright decline.
The dollar added marginally against the Japanese yen earlier in the session before pulling back to stand at ¥89.56. Finance minister Fujii's daily and apparently changeable dialogue indicated that the Bank of Japan would intervene after all if the currency volatility he's been skirting around became biased. Investors are currently taking that to mean that the BoJ will sell a stronger yen, but rest assured Mr. Fujii will likely state in coming days that he meant something altogether different. The euro maintained gains over the yen at ¥130.97.