Dollar down after G-20 meeting

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NEW YORK (CNNMoney.com) -- The dollar ticked lower against major European currencies Monday after the weekend's G-20 economic summit in Washington failed to impress currency investors.

The dollar fell against the 15-nation euro, which rose 1.2 cents to $1.265 from $1.253 late Friday. The dollar also ended the previous week's climb against the British pound, which rose 3.4 cents to $1.499 from $1.465.

Over the past several weeks, the dollar has been gaining against the euro, as investors bought the dollar to defend against economic uncertainty, and weakness in Europe raised the possibility that the Bank of England and the European Central Bank may need to cut their key interbank lending rates.

G-20: The G20 conference, a meeting of developed economies such as the U.S. and the E.U., plus developing ones such as China and Brazil, addressed global economic policy. A "big-risk event," according to Vassili Serebriakov, currency strategist with Wells Fargo in New York.

However, "it came and went without much impact," said Serebriakov.

The G-20 came as the sitting U.S. President George W. Bush is on the way out. Meanwhile his successor, Barack Obama, has yet to select a Treasury secretary to guide the world's largest economy.

"It was kind of a strange time to have a conference because of the current U.S. economic policy interregnum," said Brad DeLong, economist at the University of California at Berkeley.

The British pound was also experiencing a bit of a bounce after hitting a 6-year low against the dollar as investors anticipated an aggressive rate cutting policy from the Bank of England.

Yen: But as the dollar weakened against European currencies, it gained strength against the Japanese yen after the Japanese government revealed the world's No. 2 economy slipped into a recession.

The dollar rose ¥0.55 on Monday to ¥96.43 from ¥95.88 late Friday after Japan's Cabinet Office confirmed that the Japanese economy shrank by 0.1% in the third quarter. The move followed a contraction of 0.9% in the second quarter. That caused Japan to meet the loose definition of a recession - two or more consecutive quarters of economic decline.

The yen was also down against the euro and the pound.

While the yen and dollar were both weakening on Monday, the decline is unlikely to stick if equities continue to fall, Serebriakov said.

Stocks, which have been weakening over the past several weeks, continued to decline in New York on Monday, with the Dow Jones industrial average ending the day down 2.6%.

Lower-yielding currencies, such as the dollar and the yen, are often sold to fund investments made in denominations of higher-yielding ones, such as the euro and the pound, in a strategy referred to as the "currency carry trade."

So when equity markets decline, investors are forced to protect their investments by buying back those currencies, which drives the dollar and yen higher.

"I wouldn't expect that [correlation] to go away anytime soon," said Serebriakov.

The yen has been more popular as a carry trade currency and so it has been seeing larger swings than the dollar.