By Rachel Koning, CBS.MarketWatch.com
CHICAGO (CBS.MW) - The dollar retreated to its lowest yen value since 2000 and plumbed a deeper record euro low Friday after Federal Reserve Chairman Alan Greenspan warned that persistent U.S. financial imbalances risk cutting foreign demand for the greenback.
The Fed chief's comments, taken with those of other officials this week and on Friday, left the currency market believing little would emerge from a weekend meeting of top financial officials to curb the dollar's descent.
"There are times in the marketplace that the mobs of investors throw the charts in the trash can and go with their gut feeling, the emotion of the market, and I believe this could be one of those times," said Chuck Butler, president of Everbank World Markets in St. Louis.
"Yes, we'll see pullbacks and profit taking, but a huge pause in the [dollar-selling] trend like we experienced last spring and summer? I doubt it seriously."
The dollar was quoted at 103.10 yen in late North American trading, still down a steep 1.1 percent from late Thursday. The dollar fell earlier to 102.76 yen, territory last seen in late-March 2000.
The greenback dropped 0.6 percent against Europe's common currency compared to Thursday; one euro was fetching $1.3023. One euro would buy as much as $1.3066 at one point Friday its richest dollar value since its 1999 inception.
The dollar had stabilized to start the global trading day, but rose anew beginning after the Bank of France said it would use proceeds from selling gold over the next five years to boost its currency reserves. The currency market viewed the move as a signal reserves would be used to counter a richening euro.
The currency market was hoping for clues on the likelihood of intervention, or curbing the dollar's dive in order to preserve the export position of U.S. trading partners, when officials of the world's largest 20 economies converge in Berlin this weekend.
Greenspan said Friday that intervention's impact is seldom long- lasting
The dollar's slide accelerated as Greenspan spoke.
"It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point," Greenspan said in remarks to a conference on the euro.
But Greenspan said it was impossible to know when, or at what level, the dollar would lose its luster among the global currencies. See full story.
The United States recorded a current account deficit of $166.2 billion in the second quarter. The current account is the broadest measure of trade, including investment flows.
The deficit has swelled to nearly 6 percent of U.S. GDP, the most ever. So far, the United States has financed that gap by luring foreign investment in U.S. assets. Estimates range from $3 billion to $5 billion in daily inflows needed to keep the deficit afloat. An abrupt reversal of the flows risks deeper damage to the currency and the U.S. economy.
Because the United States imports more than it exports, the dollar is under pressure. A weaker U.S. dollar helps reduce the trade deficit.
The dollar's recent tumble is likely to feature during casual weekend discussions at a gathering in Berlin of finance ministers and central-bank chiefs from the 20 largest global economies. But analysts are skeptical members will issue a joint communiqué directly addressing currencies. See related story.
"Most likely, there will be no talk of a concerted effort to correct or allow the dollar's weakness," said Masatoshi Nishi, chief manager of the treasury and securities division at Saitama Resona Bank in Tokyo.
"The United States would likely repeat a strong dollar policy, while Japan and the Europe would say they don't want a rapid appreciation of their currencies."
Unless the G-20 issues a joint communiqué addressing currencies, the weak dollar trend is likely to continue through next week, he said.
U.S. Treasury Secretary John Snow speaking in Poland on his way to the G-20 said the meeting would be a forum for spurring faster global economic growth and trimming U.S. deficits and not Europe's concern over a weaker dollar.
Europe and Japan have argued that the swift gains in their respective currencies, which can hurt their export markets, are not justified by the strength of their economies.
German Finance Minister Hans Eichel, in an interview on German radio, said on Friday that "within the troika -- i.e., Japan, America and Europe -- we'll have to sit down together and try to reach a common solution."
Separately, German Economy Minister Wolfgang Clement called on policymakers to take action against any sudden drop in the dollar.
The dollar's fall "deserves our whole attention, especially from those responsible for monetary policy,'' Clement told Bloomberg News in an interview in Bangkok. He didn't specify what action he thought policymakers should take, the report said.