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Dollar mixed as market eyes G7, German data

NEW YORK: The dollar dipped against the yen and eked out slim gains against the euro on Wednesday as key currencies held to tight ranges ahead of economic data releases and a weekend summit of the world's financial powers.

The dollar weakened slightly against the yen after erasing overnight gains scored amid talk that other members of the Group of Seven rich nations (G7) may share Japan's concerns about yen strength.

"Generally the market is in a holding pattern ahead of the G7 meeting this weekend," said Alex Beuzelin, foreign exchange analyst at Ruesch International.

Market players doubt the G7 summit will yield coordinated action to curb the high-flying yen, which Tokyo fears may harm its fragile economic recovery. But the possibility has traders cautious, limiting the dollar's downside.

"The market's concerned that the Japanese are somehow going to paste together some effort by the G7 to weaken the currency," said David Gilmore, partner at Foreign Exchange Analytics.

The euro settled at $1.0119, barely below its Tuesday New York close. The euro rose as high as $1.0163 overnight after Tuesday's off-day on Wall Street and tested lows under $1.01 in New York trading.

The Dow Jones industrial average slipped again on Wednesday, but the euro failed to benefit.

"We are seeing continued weakness in the euro," Beuzelin said. "The Dow was off but there has been a return to stability to US equity markets. There isn't the panicky sentiment of a couple of weeks back. That's dollar supportive."

Dealers said the euro would likely remain confined to ranges ahead of the release of a key Ifo survey on German business sentiment, due out on Thursday.

"I don't think anybody really wants to place a bet one way or another," said Bob Houck, a trader at Norwest.

The day's top performer was the British pound, which powered to a lifetime peak against the euro and climbed nearly 0.5 percent against the dollar as robust British data this week reinforced expectations that UK interest rates are on the rise.

The euro closed at its record low against the pound at 61.50 pence.

The euro also dipped against the yen, and traders cited weakness in the euro/yen cross as a factor which helped the Japanese currency gain the upper hand against the dollar.

"The euro is really struggling," said Rick Gomes, managing director of foreign exchange at HSBC in New York. "There's this overall feeling that the euro community just doesn't have its act together yet," Gomes added.

Traders noted the euro got a fleeting lift from upbeat remarks by German Finance Minister Hans Eichel, who said on Wednesday that prices in Europe were stable and euro zone governments had made great strides in cutting borrowing.

Eichel also said the introduction of the European single currency last year had been an "extraordinary success," and later said that the euro/dollar exchange rate reflects divergent US and European economic developments.-Reuters