The ailing euro slumped to a new record low of $0.8622 in Tokyo Monday after getting little respite from a weekend meeting of European Union finance ministers.
The yen meanwhile failed to derive much benefit from stronger-than-expected economic growth figures in Japan.
By around 2:00 p.m. (0500 GMT) the common European currency had recovered to $0.8704, after plumbing its fresh depth in the morning. The rate compared to 0.8672 in New York late Friday.
But the recovery would be short-lived, dealers said.
"Euro-selling pressure remains strong as investors were concerned about a softer-than-expected stance adopted by euro-zone members on their weak currency," said Sakura Bank dealer Yoichiro Yamaguchi.
At their opening session Friday evening, euro-zone finance ministers meeting in France complained that the euro's weakness did not reflect economic fundamentals of the 11-nation area.
They pledged to accelerate structural reforms to boost economic growth and noted that intervention remained a tool to bolster the currency.
"The euro in the medium term is a success," declared the meeting's chairman, French Finance Minister Laurent Fabius.
But the remarks only briefly moved the euro above $0.87 in late New York trading before it slipped back closer to the previous record low of 0.8630 reached Thursday.
"The outcome of the European finance ministers' meeting was just the same as previous ones," said Fuji Bank dealer Wakou Ogawa.
"Even though Fabius told foreign exchange markets that intervention remains an instrument available at any time for the European Central Bank, investors are thinking 'If you want to intervene, just go ahead'," he said.
"Intervention would require the United States' cooperation" to bring the dollar down against the euro, Ogawa noted.
"But going into the (presidential) election in November, with a government that believes in a strong dollar, intervention with the Europeans would not be so easy."
Against the yen, the euro was worth 92.63 from 92.19 yen in Tokyo late Friday.
The euro's weakness, coupled with soaring oil prices, was an inflationary headache for the European Central Bank, said research firm IDEAglobal.com in Singapore.
"The question is whether the ECB will be forced to hold (interest) rates steady, instead of being seen to react almost automatically to a weaker euro and higher oil prices," it said.
The yen was also trading at 106.40 to the dollar, down from 106.09 in New York.
The Japanese currency earlier jumped to 105.93 against the dollar immediately after the 8:50 a.m. (2350 GMT Sunday) release of gross domestic product (GDP) data for April-June.
Japan's GDP rose 1.0 percent in the three months to June from the previous quarter and 4.2 percent on an annualized basis, slightly stronger than consensus forecasts.
"Investors bought the yen in their initial reaction to the GDP," said Sakura Bank's Yamaguchi.
"But investors then sold it after confirming that consumption was not so strong as hoped for. Yen-selling pressure is expected to continue for the time being," he said.
All-important consumer spending, which accounts for two-thirds of Japan's GDP, rose 1.1 percent from the January-March quarter.
Most of the quarterly rise came from a 13.6-percent jump in public investment, leading investors to believe that Japan's government would have to continue stimulus spending to prop up the economy.
"They came to think that the government will have to keep expending money in a supplementary budget, or by issuing government bonds," said Ogawa.
But the bond option has been thrown deeper into doubt after Moody's Investors Service Friday downgraded Japan's yen-based government debt, in a dramatic sign of alarm over the growing mountain of state debt.
"The Moody's downgrade of Japanese government bonds fuelled investors' concern about the government's fiscal weakness," said Ogawa.
"That's why the dollar was later bought back against the yen." — (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)
