Friday February 8, 2008 - 11:57:34 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro under pressure as ECB rate cuts seen
(Changes byline, updates prices and adds quotes)
By Simon Falush
LONDON, Feb 8 (Reuters) - The euro was on track for its
biggest weekly fall versus the dollar in 1-1/2 years on Friday,
after European Central Bank President Jean-Claude Trichet left
the door open for an interest rate cut later this year.
The ECB kept policy on hold at 4 percent on Thursday but
Trichet dropped a threat to act pre-emptively against rising
prices and accepted that unusually high uncertainty in markets
may hurt the real economy.
"There's clearly a perception that the ECB now has an easing
bias but they are unlikely to cut rates as early as March," said
Michael Klawitter, FX strategist at Dresdner Kleinwort in
"However any more signs of weakness in the growth outlook
will fuel expectations of an early cut and cyclical headwinds
are clearly increasing," he added.
By 1127 GMT the euro was steady at $1.4483 <EUR=>, down
around 2.2 percent since Monday and on track for its biggest
weekly fall since June 2006.
The euro was down 0.26 percent at 155.30 yen <EURJPY=>,
while the dollar edged down to 107.31 yen <JPY=>.
Trade was relatively quiet, as many Asian players are away
for the Lunar New Year break. Financial markets in Tokyo will be
closed on Monday for a national holiday.
Sterling was up around a third of a percent versus the
dollar <GBP=> and euro <EURGBP=>, recovering some of Thursday's
losses sustained after the Bank of England cut rates by 25 basis
points to 5.25 percent and signalled that it would likely stick
with a path of gradual monetary easing.
FX SIDE-ISSUE FOR G7
Investors were reluctant to take big currency positions
before a weekend meeting of Group of Seven finance officials in
The summit may yield some comments on currencies, though
forex is not expected to take centre stage.
Although the euro is now some 5 cents -- or 3 percent --
below last November's record high versus the dollar, it is still
more than 10 percent higher than a year ago and on the ECB's
trade-weighted basis it is holding just below all time peaks set
in January <EUREER=ECBF>.
Many European officials have expressed concern about the
euro's strength, with French trade minister Henri Novelli saying
on Friday that lower interest rates in the region would help
companies struggling under the impact of a stronger currency.
This view has been backed by weak export data from France
and Germany this week.
However, European officials are not expected to secure the
support of the other Group of Seven countries for some kind of
joint statement on the euro's strength or dollar's weakness.
"The reality in fact is for a re-run of October's
communiqu√©, i.e. no explicit mention of major currencies but
calls for yuan flexibility to increase. A greater focus will be
put on the risks to global growth," said ING in a client note.
A G7 source said discussions on foreign exchange rates will
be less important this time than those on policy responses to
the deteriorating international economic climate.
In October, the finance ministers stressed the need for an
accelerated appreciation of the Chinese yuan while repeating
that excess volatility and disorderly movements in exchange
rates are undesirable for economic growth.
(Reporting by Simon Falush; Editing by Ian Jones)
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