Dollar falls at end of week as Greece debt worries ease

10:46, March 14, 2010      

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The dollar fluctuated on risk appetite during the past week before falling against major currencies on Friday as investors' worries about Greece's debt crisis eased.

Debt woes in Greece and other European countries have been one of the major driving factors for currency trading in the week.

The dollar fell on Monday as French President Nicolas Sarkozy offered support to Greece. After meeting with Greek Prime Minister George Papandreou on Sunday, Sarkozy said the euro zone countries would provide aid to Greece if necessary.

"The main actors on the European stage are decided to do whatever is needed to make sure Greece is not isolated," he said.

Safety-haven demand for the greenback rebounded on Tuesday as major credit rating agencies warned on the rating outlook of some European countries.

Fitch Ratings said a sovereign debt default in one of the 16 nations that use the euro was still possible. The agency also said the U.K. needs to make a stronger fiscal adjustment to help reduce its debt ratio earlier than currently planned. Brian Coulton, Fitch's head of sovereign ratings, said the UK has seen "the most rapid rise in the ratio of public debt to GDP of any AAA-rated country".

Separately, Fitch said it may cut Portugal's AA credit rating if the nation fails to take further action to cut its deficit. The agency has put a negative outlook on Portugal's rating since September.

Moody's Investors Service, another major rating agency, said it may cut ratings on some U.K. banks as the country's financial bailout programs end as expected.

Portugal raised 990 million euros on Wednesday in a bond auction, more than initially planned. It showed that the government's new austerity plan eased some worries about the debt-hit country.

The dollar edged lower on Friday after the Greek government said that it exceeded its deficit-cutting targets in the first two months of this year. The January-February budget deficit fell 77.4 percent compared to one year ago.

European Union finance ministers will meet next week to review the deficit-cutting measures of Greece. It was reported that ministers would discuss whether any bailout for Greece should be funded by EU bonds guaranteed by eurozone governments.

Greece's budget deficit reached 12.7 percent of GDP in 2009, high above the EU ceiling of 3 percent. The Greek government has announced a series of austerity measures to reach its goal of cutting its deficit by 4 percent in 2010.

The greenback was also weighed by news that San Francisco Federal Reserve Bank President Janet Yellen is U.S. President Barack Obama's likely choice for the vice chairman of the Federal Reserve.

Yellen is a leading contender for the No. 2 spot at the U.S. central bank, a White House spokesman said Friday.

Yellen is considered by analysts to be an "inflation dove" more concerned with unemployment than inflation. She is less likely to advocate interest rate hikes compared with "inflation hawks" in Fed's monetary policy decision body.

Economic reports released in the week signalled that the U.S. recovery would be bumpy. The U.S. Commerce Department reported Wednesday that wholesale inventories fell 0.2 percent month-to-month in January. With sales up 1.3 percent from the previous month, the ratio of inventories to sales fell to 1.10, a new record low.

The U.S. Treasury reported that the February budget deficit stood at 221 billion dollars, larger than the deficit of 194 billion dollars recorded in the same month last year.

Unemployment rose in 30 states in January, the Labor Department said. The data is somewhat better than December, when 43 states reported higher unemployment rates.

The trade gap narrowed unexpectedly to 37.3 billion dollars in January, the U.S. Commerce Department reported Thursday. Exports fell 0.3 percent in value terms. Imports fell more heavily by 1.7 percent, the largest decline in 11 months. The drop in the trade deficit looks like a positive sign but investors were worried about falling trade volumes.

The euro bought 1.3757 dollars in late Friday New York trading, about 1.0 percent lower than a week ago. The British pound rose 0.1 percent to 1.5179 dollars. The dollar fell 1.1 percent during the past week to 1.0177 Canadian dollars, and fell 1.4 percent to 1.0594 Swiss francs. It rose 0.1 percent to 90.51 Japanese yen.

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