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New York: The dollar fell against the yen on Monday as fear of a US recession hit equity prices but it firmed against the euro after Europe's top monetary official said he was worried about excessive exchange rate moves.
A report on Friday showing the US economy unexpectedly shed 63,000 jobs last month extended a dollar swoon that began in late February, taking it to record lows against the euro and Swiss franc and an eight-year trough against the yen.
Though a package of Federal Reserve liquidity-boosting measures helped the greenback rebound into the weekend, risk aversion returned on Monday as investors sent Japan's benchmark Nikkei stock index to its lowest in two-and-a-half years.
That sent the dollar down 0.4 per cent to 102.25 yen after hitting an eight-year low of 101.41 yen last week and down 0.2 per cent to 1.0230 Swiss francs.
Euro stabilises
After chalking up more than a week of sharp gains that lifted it to a lifetime high of $1.5459, the euro stabilised yesterday and moved lower after European Central Bank (ECB) President Jean-Claude Trichet said the ECB was concerned about "excessive exchange rate moves."
He told reporters in Switzerland that "excessive volatility and disorderly movement in exchange rates are undesirable for economic growth," prompting traders to sell the euro.
It last traded at $1.5340, about where it ended on Friday, after dipping as low as $1.5314.
"Trichet's remarks indicate his concern about excessive currency moves, which we believe could drag the euro as low as $1.5250," said Ashraf Laidi, chief market analyst at CMC Markets in New York.
The euro also fell 0.5 per cent to 156.88 yen.
Emergency cut
A slate of dismal US economic data, capped by Friday's payrolls report, has added to recession fears and left investors ready for more Fed interest rate cuts, either at the central bank's next policy meeting on March 18 or sooner.
Goldman Sachs said in a research note yesterday an emergency Fed rate cut is possible ahead of March 18, saying it changed its view on Fed policy on Friday after the US payrolls data.
The ECB, on the other hand, has held euro zone interest rates firm at 4 per cent, and before yesterday, Trichet had focused mainly on the upside inflation risks to the euro zone economy.
Scotia Capital strategists said in a research note that the euro was veering into overbought territory and added the dollar could get a boost if increasingly risk-averse US investors start to repatriate funds.
However, they said that while "we think this is a warning signal for the euro over the next few sessions, we do not believe we have seen the end of euro strength."
Elsewhere, traders said the spotlight is on psychological levels: the previously unbreached parity level with the Swiss franc and 100 yen per dollar level not seen in over a decade.
General drift
"The general drift will continue to be weakness in the dollar. There are some tough levels for the markets to get through ... but not barriers that I think the market will fall over at," said Steve Barrow, chief currency strategist at Bear Stearns in London.
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