The dollar weakened against both sterling and the euro after the G7 meeting reaffirmed the market’s view that policymakers are comfortable with a gradually weakening dollar. This trend has been encouraged by the resilience in global equity markets. However, the dollar held steady against the yen, as the perceived greater threat of intervention from Japanese authorities to fight export-damaging yen appreciation led traders to unwind yen positions. Gold prices rose in Europe as the dollar weakened. The softer dollar is boosting interest in gold as an alternative asset as well as making the precious metal cheaper for holders of other currencies. The Australian dollar rallied to a 14-month high against the greenback after the Reserve Bank of Australia raised interest rates by 25 basis points to 3.25 per cent, becoming the first of the Group of 20 central banks to raise interest rates as the global financial crisis eases.

Sterling

Sterling pared losses against the euro and was up against the greenback after data showed Britain’s service sector grew more strongly than expected. However gains were limited by expectations UK monetary policy will stay loose for some time.

US Dollar

The US dollar fell against the euro and a basket of currencies after the G7 meeting while gains in US stock index futures diminished safe-haven demand, which also put pressure on the dollar.

Euro

The euro was up against both sterling and dollar as retail sales fell less than expected in August. Data showed a rebound in the food sector lent support to the figures in a signal consumer demand may be benefiting slightly from a nascent economic recovery.

Japanese Yen

The yen pared gains made last week after Finance Minister Hirohisa Fujii said currencies should be set by economic fundamentals and Japan is open to intervening in the currency market. The yen has risen 4.6 per cent against the dollar in the past month. These gains have squeezed profits of big exporters from Canon to Toyota Motors and are threatening the country’s export-led recovery.

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