Tuesday February 12, 2008 - 11:47:55 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro steady, rate cut views keep up pressure
(Changes byline, updates prices, adds quotes)
By Simon Falush
LONDON, Feb 12 (Reuters) - The euro held steady near last
week's lows versus the dollar on Tuesday as a survey showing
improved German investor sentiment did little to alter the view
that the ECB is set to cut rates in the next few months.
German investor sentiment unexpectedly improved in February,
rising to -39.5 this month from -41.6 in January, confounding
expectations of a drop to -45.0, the ZEW research institute
said. Click on [ID:nBAE001077].
However the current conditions indicator came in at 33.7,
well below the consensus forecast of 50.8, indicating that
investors are still jittery about how the economy is performing.
Following weak euro zone service sector data last week and a
market interpretation that the European Central Bank may be
softening its hawkish tone, investors moved to price in more
than three interest rate cuts by year-end.
This sparked a big sell-off in the euro, resulting in its
biggest weekly loss in 1-1/2 years versus the dollar.
"There was a significant change in language (from ECB
president Jean-Claude Trichet) and the market is now focusing on
risks to the downside," said Riccardo Barbieri, head of FX and
rates strategy for Europe at Bank of America.
"Clearly firms are increasingly concerned about how the
fallout from problems in the financial sector and the credit
crisis will affect the real economy," he added.
By 1126 GMT, the euro was steady at $1.4522 -- less than a
cent away from last Thursday's two week low <EUR=>.
It was also steady at 155.55 yen <EURJPY=>, while the dollar
was a touch firmer at 107.06 yen <JPY=>.
The Japanese currency came under pressure as a recovery in
equity markets made investors more willing to put on risky,
high-yielding carry trade bets funded by cheap borrowing in the
News that Credit Suisse reduced its total writedowns from
the subprime crisis added to a more upbeat stock market mood.
RATE CUTS AWAITED
Sterling <GBP=> erased earlier gains after consumer price
inflation in January came in below expectations paving the way
for the Bank of England to cut rates.
However data from the British Retail Consortium (BRC) survey
showing a rebound in sales in January, provided contrasting
evidence on the health of the UK economy.
"The mixed data is consistent with our view that the BoE
will not be very aggressive in the pace of its easing," said
Calyon in a note to clients. "If it is not sure what to do, the
MPC is most likely to do nothing and wait for more information."
Short sterling futures are discounting one more rate cut by
June, and at least two further moves by year end.
A Reuters poll taken last week showed economists are
anticipating a 25 basis point cut in the ECB's benchmark rate by
June, followed by another cut in the third quarter.
European finance ministers on Monday said record-high
inflation in the euro zone, while temporary, was of extreme
concern, and vowed to help the European central bank stop price
hikes from spilling over into higher wages.
(Editing by David Christian-Edwards)
journalists are subject to the Reuters Editorial Handbook which
requires fair presentation and disclosure of relevant interest
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