Friday March 28, 2008 - 11:26:49 GMT
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Reuters - www.reuters.com
FOREX NEWS-Hawkish Weber comments give euro boost vs dlr
By Toni Vorobyova
LONDON, March 28 (Reuters) - The euro rose towards record
highs versus the dollar on Friday after inflation-focused
comments from a euro zone policymaker reinforced the view that
European Central Bank is unlikely to cut rates any time soon.
Speaking after data from four German states pointed to a
likely inflation pick-up in the euro zone's biggest economy and
thus in the 15-nation bloc as a whole, ECB Governing Council
member Axel Weber said price pressures were alarmingly high.
The ECB's focus on fighting inflation has made it more
tolerant to a strengthening currency and is in sharp contrast to
the stance of the U.S. Federal Reserve, which has slashed rates
by 300 basis points in the last seven months to boost growth.
The diverging interest rate paths and signs that the euro
zone, at least for now, is proving resilient to a U.S.-led
economic slowdown helped push the euro to record highs above
$1.59 last week.
With gains of over 8 percent since the start of the year,
the currency is on track for its best quarterly performance
since late 2004, and analysts say that further gains towards
$1.60 could well be on the cards.
"We had the comments from Weber, and also some high (German)
inflation rates, so probably the trend for the dollar for the
next couple of days is still down," said Marcus Hettinger,
global FX strategist at Credit Suisse in Zurich.
"This week rather strong European data (is) enforcing the
current hawkish stance of the ECB while the U.S data are very
weak and point to another rate cut by the Fed," he added.
By 1057 GMT, the euro was up 0.2 percent at $1.5812 <EUR=>,
less than a cent below last week's historic peaks.
The euro also set a record high against a sterling weighed
down by weak UK housing data and growing expectations that the
Bank of England cut interest rates again as soon as April.
The euro rose as high as 79.29 pence <EURGBP=> and was also
up 0.6 percent at 158.16 yen <EURJPY=>.
GRIM PICTURE IN U.S.
Atlanta Fed President Dennis Lockhart said on Thursday the
economy may be slipping into recession and that the Fed must
cushion the pain. This raised expectations of more rate cuts
after the central last week slashed its benchmark lending rate
by 75 basis points to a three-year low of 2.25 percent.
"Comments from the Fed overnight continue to paint a grim
picture of the situation in the U.S. and there's an increasing
risk of the U.S. moving into a recession," said Ian Stannard,
senior foreign exchange strategist at BNP Paribas.
On the heels of data confirming that economic growth nearly
slowed to a halt in the fourth quarter, other Fed officials said
the U.S. mortgage crisis is continuing to strangle consumer
U.S. data due at 1230 GMT is expected to show that the core
personal consumption expenditure price index, a widely-watched
gauge of inflation pressures, rose just 0.1 percent in February.
Proof of slowing price pressures would strengthen the case
for the Fed to remain focussed on growth and thus to keep
Market participants said that the dollar may come under
renewed selling pressure. Traders were on high alert for rumours
of more troubles at U.S. investment banks as the fallout from
the credit crisis continues.
The U.S. currency had slipped in Asian trade on chatter that
Lehman Brothers (LEH.N: Quote, Profile, Research) could suffer a fate similar to the near
collapse of Bear Stearns (BSC.N: Quote, Profile, Research), which hurt sentiment. Lehman
called the rumours "totally unfounded". [ID:nN27289860]
(Editing by David Christian-Edwards)
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