The Japanese yen rose against the dollar on Monday after the Group of Seven nations warned of further financial-market turmoil. The G-7 estimated global banks will write down $400 billion because of losses on U.S. subprime mortgages. The greenback fell from 107.66 to 106.33 versus the Japanese yen on Monday.
Finance ministers and central bankers of the U.S., the U.K., Canada, Italy, France, Germany and Japan ended a weekend meeting in Tokyo with a statement that ‘downside risks persist’, including the U.S. housing slump and tighter credit conditions. German Finance Minister Peer Steinbrueck said. Financial institutions have marked down about $146 billion of losses since the start of 2007.
There was little news for foreign exchange markets on the G7 meeting. G7 reiterated the previous statement that exchange rates should reflect economic fundamentals. They tweaked comments on China's yuan to say ‘we encourage’ the need for greater appreciation of the currency, instead of ‘we stress’.
The single currency pared gains against the dollar from 1.4578 to 1.4482 as traders increased bets the European Central Bank will cut interest rates later this year. The yield on the December euribor interest rate futures contract fell to 3.31% from 3.64% a week ago. German two-year notes yielded 1.13 percentage points more than similar-maturity Treasuries, down from 1.32 percentage points a week ago. The euro strengthened earlier to 1.4578 versus the dollar after ECB council member Axel Weber said in an interview with the Frankfurter Allegemeine Zeitung newspaper the central bank is still concerned about inflation, which recently hit a 14-year high.
The British pound rebounded from 1.9402 to 1.9531 after the release of higher-than-expected U.K. PPI - the readings were highest since 1991 (core M/M Jan was 0.8% versus forecast of 0.3%, trade balance and housing data also came in better than economists' forecast). However, the greenback bounced against the Swiss franc from 1.0946 to 1.1048.
The Australian dollar rose strongly against the U.S. currency from 0.8951 to 0.9059 after the Reserve Bank of Australia warned it would likely need to raise interest rates again, from an 11-year peak of 7%, to counter inflation.
Tuesday will see the release of U.K. BRC retail sales, CPI and RPI, eurozone and German ZEW survey respectively.