April 14 — The dollar rose to a one-week high against the euro after the Group of Seven expressed concern over “sharp fluctuations” following a 14 percent slump in the currency over the past year.

The G-7 changed its statement on currencies for the first time in four years after the meeting in Washington on April 11, pledging to “monitor exchange markets closely, and cooperate as appropriate.” The yen rose versus the euro and pared losses against the dollar as a drop in Asian stocks caused investors to pare holdings of higher-yielding assets funded in Japan.

“In the short-term the G-7 communiqué will be quite significant,” said Sue Trinh, a currency strategist in Sydney at RBC Capital Markets, the investment banking unit of Royal Bank of Canada. “We don’t think intervention is imminent but certainly a step-up in rhetoric is to be expected. I expect to see this underpinning the U.S. dollar in coming weeks.”

The dollar rose to $1.5733 per euro at 7:12 a.m. in London, from $1.5808 late in New York on April 11. It reached $1.56, the strongest level since April 3. The currency was little changed at 100.89 yen from 100.95 yen. The yen gained to 158.72 per euro from 159.55. The U.S. currency may advance beyond $1.55 this week, Trinh said.

The Australian dollar, a favorite for so-called carry trades, fell 0.6 percent to 92.23 U.S. cents and dropped 0.7 percent to 93.06 yen. The New Zealand dollar declined 0.7 percent to 78.79 U.S. cents and 0.8 percent to 79.42 yen. The Nikkei 225 Stock Average fell 3.1 percent, its biggest decline since March 17.

Carry Trades

The change in the G-7 statement was the most significant since the Boca Raton, Florida, meeting in February 2004, when officials cautioned against “excess volatility.” The latest statement didn’t explicitly mention the dollar or suggest plans for intervention, in which central banks arrange purchases or sales of foreign exchange.

The Philippine peso fell 0.3 percent to 41.715 per dollar and the Indonesian rupiah dropped 0.3 percent to 9,201 against the U.S. currency as record prices for rice, wheat, milk and cooking oil fuel inflation. Investors from Deutsche Asset Management to Fortis Investments are trimming bondholdings in the region.

`Sharp Fluctuations’

“Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,” the G-7 statement said. “We continue to monitor exchange markets closely, and cooperate as appropriate.”

French Finance Minister Christine Lagarde said in an interview with Bloomberg Television that she hoped the “concerted wording” would help temper the dollar’s decline.

“The markets tend to take the view that the U.S. wants to see the weakening of the dollar,” Makoto Utsumi, a former top currency official at the Finance Ministry and now president of Japan Credit Rating Agency Ltd. in Tokyo, said in an interview with Bloomberg Television. “This was denied in a clear-cut way. The G-7 clearly shared concern.”

The dollar wasn’t “mentioned specifically,” suggesting U.S. policy makers still favor a weak dollar to spur the economy, Ashley Davies, a currency strategist in Singapore at UBS AG, the world’s second-biggest currency trader, wrote in a report today. Support for the dollar will be limited because the focus was “on volatility, not levels,” Tomoko Fujii, a currency strategist in Tokyo at Bank of America Corp., the sixth-largest, wrote in separate research.

Dollar Index

The Dollar Index rose 0.4 percent, the most since April 1. The measure of the currency against six of its main counterparts has tumbled 6 percent this year on concern that credit-market losses will push the U.S. economy into a recession.

“Traders will be more reluctant to push the dollar lower, even if there are factors that suggest it should fall,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s second-largest bank by assets. The dollar may rise to 102.20 yen and $1.56 per euro today, he said.

The last time the G-7, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, intervened in the currency market was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. The euro initially rose 4 percent, only to end that year 13.8 percent lower. The G-7 last propped up the dollar in 1995, when it sank to a post-World War II low of 79.75 yen. The U.S. currency rose 4 percent against the yen that year.

Carry Trades

In carry trades, speculators get funds in a country with low borrowing costs and invest in one with higher returns, earning the spread between the two. The risk is currency fluctuations erase profits between the two rates. Japan’s interest rate of 0.5 percent compares with 7.25 percent in Australia and 8.25 percent in New Zealand.

The dollar pared its gains may be limited before a Commerce Department report today that may show retail sales in the U.S. stagnated in March, according to the median estimate of economists surveyed by Bloomberg News.

Futures show traders see a 46 percent chance that the Federal Reserve will cut its benchmark rate by 50 basis points to 1.75 percent at the next meeting on April 30, compared with zero chance a month ago. The odds for a cut to 2 percent at the meeting fell to 54 percent from 64 percent.

The euro also pared its decline after European Central Bank council member Yves Mersch said the bank can’t afford to cut its 4 percent benchmark rate this year with inflation likely to breach its 2 percent limit in 2009.

“The dollar’s rally after the G-7 meeting should be temporary,” said Tetsuhisa Hayashi, chief currency manager of foreign-exchange trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., Japan’s second-largest bank by assets. “The U.S. economy may have entered a recession since the end of last year,” which may push down the dollar to 92 yen by June 30, Hayashi said.