The dollar fell on Friday after US Treasury Secretary Tim Geithner urged the Group of 20 nations not to weaken their currencies or keep them undervalued, in his push for a co-ordinated move to fix global imbalances. "Geithner appeared to be more aggressive (about global economic rebalancing), leading to the dollar's weakness," said a trader at a Japanese bank.
Some in the market saw his comments as suggesting a limited effort to move to immediately prop up the dollar. Geithner also said emerging economies with undervalued currencies and solid reserves must allow their currencies to adjust in line with fundamentals, while a G20 source told Reuters he also called for a 4 percent cap on current account imbalances.
The euro gained about 0.3 percent while the Australian dollar rose 0.5 percent after Geithner made his proposal in a letter to G20 finance chiefs ahead of a meeting in South Korea later the day. The US proposals, including a plan to set a numerical balance of payment target, have so far run into stiff resistance from many other G20 partners. A senior G20 official, however, put the chances for an agreement on current account targeting at even.
"It looks like the markets' interpretation of it and why it's driven the dollar lower is that Geithner's preoccupation with trade issues as opposed to currency suggests there won't be any co-ordinated effort to underpin the US dollar," said Sue Trinh, senior FX strategist at Royal Bank of Canada,
The dollar index fell 0.2 percent to 77.264, slipping further away from resistance at 77.60-65, a break of which is vital to keep up momentum for a higher bounce from a 10-month low of 76.144 hit last week. It has major trend-line support at 76.10, which could limit its downside, although a break there could open the way to last November's low at 74.17.
Prospects for the Fed to pump more money into the economy next month, likely through direct purchases of Treasury debt, have pushed the dollar down more than 7 percent against other major currencies since September. The euro, which corrected sharply lower this week after a month-long rally, needs to tackle resistance at $1.4050, which it failed to clear on Thursday.
A break above that would open up the way for a retest of $1.4161, the top of the recent rally and its highest level since January. Dollar/yen slipped 0.3 percent to 81.10 yen, still holding above its latest 15-year low of 80.84 yen set this week and keeping away from its record post-war low of 79.75 set in 1995.