Dollar weighed by downgrade of US credit rating

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TOKYO: The dollar was under pressure in Asia on Monday following last week's US credit downgrade, but it gained some support from an agreement by G7 finance chiefs to cooperate against excessive currency moves.

The euro also gained after the European Central Bank said it would make major purchases of eurozone government bonds.

The dollar fell to 78.05 yen in Tokyo trade from 78.54 yen in New York late Friday. The euro gained to $1.4338 from $1.4281. The European single unit was almost flat at 111.93 yen against 111.96 yen.

The dollar was hurt after Standard & Poor's on Friday cut the US's top credit rating for the first time ever, citing the country's looming deficit burden and weak policy-making process.

However, financial chiefs and central bankers of the G7 early Monday agreed to cooperate against excessive forex moves, Japan's Finance Minister Yoshihiko Noda said before Asian markets opened.

He said officials of the Group of Seven -- Britain, Canada, France, Germany, Japan, Italy and the United States -- had also talked about European economic issues amid worries over eurozone sovereign debt.

Noda said excessive foreign exchange movements were undesirable but declined to comment on whether Japan had gained understanding from other economic powers on a yen-selling intervention last week.

The joint G7 statement "provides the market with some sense of ease," Dai-ichi Life Research Institute senior economist Toshihiro Nagahama to
Jones Newswires.

The statement is "positive" because members "were able to reach an agreement quickly," Citibank Japan chief currency strategist Osamu Takashima said.

Looking ahead, investors will be paying attention to whether the G7 statement is sufficient in easing investors' minds on the ongoing European debt crisis, Takashima said.

The euro gained against the dollar after the European Central Bank said it would "actively" renew bond purchases after Italy and Spain announced new economic measures and reforms, and France and Germany pushed for full and rapid implementation of terms agreed at an emergency summit last month.

Eurozone debt markets will be focused on any purchases of bonds issued by Italy and Spain, the third- and fourth-biggest eurozone economies, for signs of ECB activity. The central bank itself never identifies which bonds it buys.

Sumino Kamei, senior analyst at the Bank of Tokyo-Mitsubishi UFJ, said the ECB decision was "positive" for the euro. (AFP)

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