Thursday January 24, 2008 - 12:23:31 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro bounces back as rate cut hopes ease
(Changes byline, adds quotes, updates prices)
By Ian Chua
LONDON, Jan 24 (Reuters) - The euro strengthened against the
dollar and yen on Thursday after tough talk on inflation from
European Central Bank policymaker Axel Weber dampened
expectations of a possible near-term interest rate cut.
The yen retreated on the back of the bounce in the euro and
as European stocks extended their rally, after earlier gaining
on lingering concerns over the health of the global economy.
"For the time being, the ECB are maintaining a very hawkish
line so no signs of any rate cut any time soon," said Chris
Turner, head of FX strategy at ING.
"You're then left with sharply lower U.S. rates, stable
European rates and with equities doing quite well at the moment
... the market is just going to focus on the dollar bearish
Weber said the U.S. Federal Reserve's surprise decision to
cut interest rates by 75 basis points this week hasn't shifted
the ECB focus on euro zone inflation, dampening mounting
expectations that it too will have to cut rates soon.
The euro climbed 0.3 percent to $1.4683 <EUR=> by 1206 GMT
and was also up 0.3 percent versus the Japanese currency at
156.60 yen <EURJPY=>, well above an early low of 154.86 yen.
The dollar was steady against the Japanese currency at
106.65 yen <JPY=>, off early lows.
Higher-yielding currencies such as the New Zealand <NZD=>
also benefited, gaining 0.6 percent to $0.7715 .
The euro had come under selling pressure in recent weeks as
signs emerge that weakness in the U.S. economy is having a
knock-on effect on the euro zone, fuelling the argument for a
rate cut by the European Central Bank.
Some of those concerns also eased slightly after German
corporate sentiment unexpectedly rose in January, bolstering
policymakers' assertion that the euro zone economy can withstand
turmoil in financial markets. [ID:nL24345341].
The turnaround in the euro helped reverse earlier demand for
the low-yielding yen when investors remained worried about the
U.S. economy despite Wall Street's positive performance
Optimism about a U.S. government plan to rescue ailing bond
insurers, which could prevent investors from being forced to
sell billions of dollars of bonds the insurers had covered,
sparked a comeback in stocks, but was greeted initially with
scepticism in the currency markets.
The FTSEurofirst 300 index of top European shares
jumped 5 percent.
(Editing by Ron Askew)
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