(Recasts, updates prices, adds quotes)
By Steven C. Johnson
NEW YORK, April 14 (Reuters) - The dollar was little
changed on Monday as more banking sector stress added to
worries about the U.S. economy, overshadowing a Group of Seven
warning on the threat sharp exchange rate moves pose to
financial stability.
A surprise first-quarter loss at Wachovia Corp <WB.N>, the
fourth-largest U.S. bank, suggested more credit market turmoil
ahead, prompting traders to sell dollars, mostly against the
euro and sterling.
That helped wipe out dollar gains seen after finance
officials from the G7 developed countries on Friday expressed
concern about sharp currency fluctuations, the first change to
the group's boilerplate foreign exchange language since 2004.
The dollar had rallied briefly overnight on the view that
G7 countries may start buying the dollar to slow its decline.
By Monday in New York, though, investors were betting the
G7 would not back up its words with action, especially with the
Federal Reserve likely to cut interest rates further to support
a U.S. economy many fear may already be in recession.
"At the end of the day, they didn't mention the dollar
directly, they didn't talk about intervention, and unless the
Fed is willing to end its easing cycle, there's little (the G7)
can do," said Mark Frey, head currency trader at Custom House,
a global payments dealer in Victoria, British Columbia.
Analysts said the statement may slow the dollar's decline,
but would not alter the currency's broad weakness.
Late in the afternoon, the euro was trading at $1.5806
<EUR=>, near its closing level on Friday. It fell as low as
$1.5670 after the G7 statement but also traded up at $1.5885,
not far from an all-time high above $1.59.
Sterling rose 0.3 percent to $1.9758 <GBP=>, while the
dollar edged up 0.1 percent to 101.04 yen <JPY=> after earlier
falling to 100.31 following news of Wachovia's losses.
The dollar got some support on Monday from data showing
U.S. retail sales for March unexpectedly rose, though details
of the report suggested the headline number was driven mainly
by soaring gasoline costs, not by resilient consumers.
FED STILL LIKELY TO EASE
The Fed has cut the benchmark interest rate by 300 basis
points since credit turmoil began in late August and is likely
to reduce it again when it meets later this month.
The European Central Bank, meanwhile, has held rates at 4
percent for more than a year, and comments from policy-makers
on Monday clearly indicated the bank's lack of interest in
cutting rates, adding additional support to the euro.
ECB Governing Council member Yves Mersch was quoted on
Monday as saying there is no room for rate cuts this year.
Any official attempt to weaken the euro and boost the
dollar would run up against the respective monetary policies of
the two central banks, limiting the impact of intervention.
In addition to Wachovia, Merrill Lynch & Co Inc <MER.N> and
Citigroup Inc <C.N> are due to report first-quarter results
later in the week, and analysts say both banks may announce
billions of dollars in write-downs.
"We had gone through a period in recent months in which the
Fed's focus seemed to be shifting away from financial stress
and toward economic stress, but the Wachovia announcement puts
financial stress back into the Fed policy mix," said Robert
Sinche, head of liquid products strategy at Bank of America in
New York.
He said that means investors are likely to make another run
at pushing the euro to a new record peak around $1.60,
particularly as the Fed's April 29 meeting draws near.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Dan Grebler)
