03.04.08, 12:54 AM ET
HONG KONG (Thomson Financial) - The US dollar was firmer against the euro and the yen in afternoon trade in Asia on Tuesday after European and Japanese officials aired their concerns about the impact their strong currencies are having on their respective economies.
Luxembourg and Slovenia finance ministers have expressed worries about the rise in the euro, which has risen to record levels against the dollar since last week, while Japan's economic and policy head warned about the strong yen's impact on consumption and earnings at companies.
'The European officials are trying to slow down the rapid appreciation of their currency, which is bad for their exports,' said Mark Wan, chief analyst at Hang Seng Investment Services Ltd.
'But they are not trying to prevent its appreciation because there is no reason why the euro should not continue its appreciation. Economic data coming out of the US is not helping the dollar.'
Last month, the European Commission cut its 2008 growth estimate for its 15-member euro zone area to 1.8 percent from 2.2 percent.
At 1.00 pm (0500 GMT), the euro was trading at 1.5181 dollars, down from 1.5200 in Tokyo this morning. The euro rose to a fresh record 1.5275 dollars in New York trade Monday.
The dollar was quoted at 103.36 yen, up from 103.26 this morning. The greenback touched a three-year low of 102.62 yen overnight.
'The Japanese government should be worried about the strong yen because it will not help their already weak economy,' said Wan. Given its slowing economy, the yen should be trading at the 107-108 levels versus the greenback, he said.
The International Monetary Fund in January lowered its 2008 growth forecast for Japan to 1.5 percent from 1.7 percent previously.
The dollar was also supported by the Institute for Supply Management (ISM) report on Monday showing that the US manufacturing index came in at 48.3 in February -- higher than the 48.1 forecast by Thomson Financial/IFR.
Still, the greenback will remain under pressure because some analysts and traders are speculating that the Federal Reserve will probably slash its interest rates by up to 75 basis points on March 18, said Wan.
The euro may reach another record of 1.55 dollars, he said.
The Fed has trimmed its rates by a cumulative 225 basis points since September to stimulate the US economy reeling from rising jobless rate, falling consumer spending, higher inflation and a slumping financial and housing sectors.
Investors are now waiting for the release of the ISM service sector index on Thursday and the non-farm payrolls data, due out Friday, for fresh clues about the US economy and interest rates.
'Depending on the outcome of the ISM service sector report and non-farm payrolls data, the dollar may quickly resume its downtrend and test the 100 yen level,' said Mitsubishi UFJ Securities foreign exchange manager Minoru Shioiri.
The market is bracing for more US interest rate cuts after Philadelphia Federal Reserve president Charles Plosser said overnight that the spike in US inflation is 'worrisome, but also highly uncertain', suggesting the Fed hopes weaker growth will diminish price pressures.
Plosser said he does not believe the US is in a recession, but that the economy will experience 'very slow growth' in the first half of the year.
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