Dollar slumps on Fed view in Tokyo

The euro hit a record high against the dollar on Friday as the dollar languished after soft US data and weak earnings from the No 2 US bank bolstered expectations for the Federal Reserve to cut interest rates.
The single currency climbed to $1.4320 according to electronic trading platform EBS, and the growing view for lower US rates also drove the dollar to a record low versus a basket of major currencies and a three-week low against the yen. A slide in Asian equities offered a broad boost to the yen, as it pointed to an ebbing of risk appetite and encouraged unwinding of risky bets against the low-yielding Japanese currency.
As traders braced for a meeting of Group of Seven finance ministers in Washington later on Friday, a nearly 2 percent slump in the Nikkei share average helped the yen gain a leg up on the dollar and high-yielding currencies.
"There is some wariness hanging over the market," said Akira Kato, senior manager for Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading department. "That is leading to some moves akin to risk aversion and buybacks of the yen," Kato said. Investors are concerned about the outlook for Chinese and Indian shares, particularly as Indian shares have fallen sharply this week. India's main BSE index tumbled as much as 2 percent in early trade on Friday.
"People have become very concerned about Indian stocks this week, given that losses could trigger more risk aversion," said Hideki Amikura, forex manager at Nomura Trust and Banking. "The impact of a significant sell-off wouldn't be as big as the subprime fallout, but people are getting nervous," he said, adding that investors may take a cue from ongoing weakness in Indian stocks to further unwind yen carry trades.
In those trades, investors use low-yielding currencies like the yen to fund investments in higher-yielding ones. The dollar fell 0.45 percent to 114.88 yen on electronic trading platform EBS, its lowest since early October. The dollar index, which measures the dollar's performance against a basket of major currencies, dipped to a record low around 77.406.
The yen gained broadly versus high yielders, with the euro falling 0.4 percent to 164.50 yen. The New Zealand dollar dropped 1.1 percent at one point, while the Australian dollar fell 0.8 percent. Bank of America reported a much larger than expected 32 percent drop in quarterly profit on Thursday on the back of mounting credit losses, fanning concerns that a global credit squeeze is far from over.