FOREX NEWS-Euro charges towards record high vs dlr, data lifts
Wed Mar 12, 2008 7:43am EDT
(Changes byline, recasts)
By Simon Falush
LONDON, March 12 (Reuters) - The euro raced towards a record high versus the dollar on Wednesday as strong data reinforced a view that the European Central Bank is not rushing to ease monetary policy while U.S. authorities are seen slashing rates.
The greenback got a boost on Tuesday after the Federal Reserve lifted short-term funding to primary dealers to $200 billion and allowed them to use a wider array of mortgage debt as collateral. Central banks in the euro zone, Britain, Canada and Switzerland also took action.
This sparked a rally in equity markets and set the dollar up for its biggest one-day percentage rise versus the yen in nearly seven months.
But data showing euro zone industrial output rose much more than expected in January gave investors the excuse to resume dollar selling [ID:nL11403377].
The strong European data came after hawkish talk from ECB board member Axel Weber on Tuesday who said high price pressure left the central bank with no room to cut rates.
"These firm industrial production data...gives a bit of support to euro/dollar," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.
"It is more the language from Weber yesterday which represents the true view of the ECB, and looking at the data, rightly so."
Although markets have trimmed their bets for Fed rate cuts on the liquidity news, they are still pricing in a 2-in-3 chance of a 75 basis points easing this month alone FEDWATCH.
This compares with expectations of less than 50 basis points of cuts from the ECB over the whole of 2008 FEIZ8.
By 1114 GMT the euro had risen as high as $1.5477, less than 20 ticks off an all-time high set the previous session <EUR=>.
The dollar fell 0.8 percent against a basket of six major currencies to 72.677, homing in on a record low of 72.462 set at the end of last week .DXY.
It also eased 0.6 percent to 102.62 <JPY=> heading towards Friday's eight-year low around 101.40 yen.
In a sign that the dollar's weakness will lead central banks to change the composition of their forex holdings, Jordan said it was set to reducing the U.S. currency's composition in its currency reserves [ID:nL12674218].
China's commerce minister said his country should hold its FX reserves in various currencies [ID:nL12701672] also raising the spectre of dollar selling.
DECOUPLING FOR NOW
Analysts see scope for more euro gains against the greenback as the European economy seems to be relatively immune to problems besetting the United States.
"Economic news continues to support the euro bulls argument for decoupling and until the market begins to see evidence to the contrary the path of least resistance in the (euro/dollar) pair remains up," said Forex Capital Markets in a note to clients.
With the euro up almost 6 percent since the start of the year, investors will be looking for any comments from policymakers on exchange rates.
Weber, fellow ECB Governing Council member Guy Quaden, Executive Board member Juergen Stark, President Jean-Claude Trichet and Eurogroup Chairman Jean-Claude Juncker are due to speak later on Wednesday. (Additional reporting by Toni Vorobyova) (Editing by Ron Askew)
Reuters journalists are subject to the Reuters Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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