Currencies

Intraday volatility pounded the dollar, especially against the euro. When the day was done, the euro looked as though it traded within a narrow range. In fact, the dollar slid to a fresh 17-month low against the euro, dragged lower Friday by sinking equities and disappointment over a consumer confidence indicator that suggested the U.S. economic recovery may be slowing in the second quarter. This fueled speculation investors will shun American financial assets. At its peak the euro reached $0.9526. But the currency quickly surrendered its gains as stocks in the U.S. regained some of their composure.

The dollar fell a 10th week in 11 against the euro. It declined a fourth week in five against the yen. Also fueling the declines was speculation about further potential terrorist attacks on the United States after a fatal car bombing outside a U.S. consulate in Pakistan. Concerns about terrorism and falling stocks are prompting some investors to keep their money at home.

Despite Japan's expanding current account surplus (a currency plus), analysts are becoming increasingly skeptical about the ability of the yen to push higher. A renewed appreciation of the problems facing the economy is assisting efforts by Japanese authorities to forestall a rise in the currency. After a first quarter of growth, analysts are abandoning hopes of a more sustained cyclical recovery. The strength of the export sector, which is so dependent on the U.S. economy, is likely to be overshadowed by an ever-rising number of bankruptcies and climbing unemployment. Recent surveys suggest capital spending will remain weak, and domestic consumption shows few signs of revival. The inability of the authorities to take decisive action to rescue the economy has placed limits on yen appreciation as well.