Fri Apr 28, 2006 7:50 PM BST
(Updates with fresh prices, quotes, changes bline)
By Jamie McGeever
NEW YORK, April 28 (Reuters) - The dollar slumped to an 11-month low against the euro on Friday, as selling continued after Federal Reserve chairman Bernanke said on Thursday that the Fed may soon pause in its 21-month campaing to raise interest rates.
Interest rate differentials between the U.S. on the one hand and Europe and Japan on the other have helped to support the U.S. dollar in the past year, but with that prop seen being removed the market was now focusing on factors bearish for the greenback, analysts said.
After last week's meeting of finance ministers from Group of Seven countries some officials have said that currency markets have misinterpreted the G7 statement as a call for a decline in the dollar, but U.S. Treasury Secretary Snow on Friday said the statement, which called for currency appreciation in China and emerging markets in Asia, spoke for itself.
"At another time, Snow's (non) comments might have been more innocuous," said Sophia Drossos, senior currency strategist at Morgan Stanley in New York.
"But in the current environment, where the market perceives the Fed to be nearing an end, they seemed to sanction the market's view that the G7 wants a weaker dollar."
The dollar's slide this week left it on track for its worst monthly performance against major currencies since September 2003, when the G7 finance ministers met in Dubai and called for increased "flexibility" in global currency markets
The dollar did not get much support from U.S. economic data on Friday either, after first quarter GDP data showed robust economic growth but softening inflationary pressures, consumer sentiment, and regional manufacturing activity.
Mid-afternoon in New York, the euro was up 0.8 percent on the day around $1.2625
Sterling
The dollar was down 0.3 percent against the yen at 113.73 yen, having hit a three-month low of 113.66 yen.
"The ongoing story remains bearish for the dollar," said Charmaine Buskas, FX analyst at Moody's Economy.com in West Chester, Pennsylvania.
For details on the first quarter gross domestic product data, see [ID:nN28265299]; for more on consumer confidence [ID:nNYJ000065] and more on the Chicago purchasing managers index [ID:nN28392548].
The data did little to uproot a near-consensus that the Fed will likely take a break after raising rates by a quarter percentage point in May, after 15 rate rises since June 2004.
"It looks increasingly like the Fed rate hike cycle is coming to an end, and that's been the focus," Buskas said. "... The market is just looking for an excuse to sell the dollar."
The Swiss franc was among the biggest winners against the dollar, shooting up 1.5 percent and supported by safe-haven flows as geopolitical tensions surrounding Iran's bid for a nuclear weapon escalated.
Most European markets are closed Monday for Labor Day, and Japanese financial markets will be closed for a part of next week for the Golden Week holiday.
(Additional reporting by Nick Olivari)
Source:reuters
