The dollar steadied on Friday after rising against the euro and the yen overnight as most investors stayed on the sidelines before a weekend meeting of Group of Seven finance officials in Tokyo.
The euro remained under pressure against the dollar after European Central Bank President Jean-Claude Trichet on Thursday said euro-zone growth risks are to the downside, paving the way for lower interest rates this year. The euro is now on track for its biggest weekly decline against the dollar in 1-1/2 years, after approaching a record high last week.
It fell on Thursday as the ECB kept benchmark borrowing costs on hold at 4 percent while Trichet, at a post-meeting news conference, dropped a threat to act pre-emptively against rising prices and accepted that unusually high uncertainty in markets may hurt the real economy.
Given such fears, investors waited to see how G7 nations will cooperate in dealing with the struggling global economy and market turmoil, but some traders said the meeting may have a limited effect on currencies, which were not expected to take centre state at the gathering.
"We may hear words from ministers on US subprime mortgage problems, but the G7 meeting overall is seen unlikely to make a major impact on the market," said a senior trader at a big Japanese bank.
The euro was unchanged from late US trade on Thursday at $1.4480 after tumbling more than 1 percent overnight to $1.4440 on electronic trading platform EBS. The euro has lost 2.11 percent this week, heading for its biggest weekly fall since June 2006.
The single currency climbed as high as $1.4956 a week ago as aggressive interest rate cuts by the Federal Reserve boosted the euro's rate advantage against the dollar. Many European officials have expressed disdain with the euro's strength, with French Trade Minister Henri Novelli saying on Friday that lower interest rates in the region would help companies struggling under the impact of a stronger currency. The dollar edged down against the yen to 107.35 yen as some traders took profits on the previous session's jump to 107.83 yen from below 106 yen.
Trade was quiet, as many Asian players are away for the Lunar New Year break. Financial markets in Tokyo will be closed on Monday for a national holiday. The spectre of a US recession on top of a festering crisis in financial markets will test the limits of cooperation among the G7 industrial powers when their finance ministers and central bank chiefs meet on Saturday in Tokyo.
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