Tuesday April 8, 2008 - 13:32:33 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar edges higher as euro rally runs out of steam
(Recasts, changes byline, dateline, previous LONDON)
By Lucia Mutikani
NEW YORK, April 8 (Reuters) - The dollar rose against a
basket of currencies on Tuesday amid growing views that a sharp
economic downturn in the United States could spread to other
countries and prompt their central banks to cut interest
These concerns appeared to be supported by data showing a
sharp drop in UK home prices which pushed sterling to a record
low against the euro and made it the biggest loser among major
Analysts said the dollar, which had seen some selling
pressure overnight, was being supported investors' reluctance
to aggressively buy the euro ahead of Thursday's European
Central Bank meeting and a G7 gathering later in the week.
"We are getting a bit of dollar strength as we go forward,"
said Boris Schlossberg, senior currency strategist at
DailyFX.com in new York.
"The focus is now shifting from weakness in the U.S. to the
possibility of the rest of the world having to begin to lower
interest rates to combat a global slowdown."
The Federal Reserve has slashed its benchmark overnight
lending rate by 3 percentage points to 2.25 percent since
mid-September, in a bid to prop up a faltering economy. That
wiped out the dollar's yield advantage against currencies such
as the euro.
The New York Board of Trade's dollar index, which tracks
the greenback's performance against a six major currencies,
climbed to a session high of 72.376 .DXY. It was last trading
around 72.324, up 0.1 percent on the day.
The euro gave up earlier gains, which had pushed to it up
to $1.5798 in overnight trade. It was last trading down 0.1
percent at $1.5689 <EUR=>.
CENTRAL BANK MEETINGS IN FOCUS
"The euro has found a lot of resistance at the $1.5750. It
seems to have run out of steam right now," said Schlossberg.
"Everybody is focused on the central bank meetings and
people think that perhaps (ECB President Jean-Claude) Trichet
is going to be a little more dovish and at least acknowledge
that the euro-zone economy is starting to slow down."
Perceptions that the ECB will most likely maintain its
hawkish inflation rhetoric on Thursday due to signs of building
price pressures had lifted the euro to a three-month high
against the yen and a record peak versus sterling.
The euro rose as high as 161.74 yen <EURJPY=> according to
Reuters data, before slipping to 160.62 yen, down 0.1 percent
on the day.
"I don't think expectations have changed a great deal. The
ECB will stay on hold and likely maintain their hawkish
rhetoric," said David Pais, currency strategist at Citigroup.
Adding some gloss to the euro's performance were some
corporate-related buying in a thin market -- "lumpy flows you
get from time to time" -- as well as euro/sterling's jump after
the Halifax British house price data.
Sterling was the biggest loser of the major currencies,
falling 1.0 percent to $1.9679 <GBP=>. It dived a record low of
78.97 pence per euro <EURGBP=>.
Halifax, Britain's biggest mortgage lender, said UK house
prices fell 2.5 percent in March, the biggest drop since
September 1992, and much steeper than the market's forecast of
a 0.4 percent decline.
The data confirmed expectations for a growth-boosting BoE
rate cut from the current 5.25 percent this Thursday.
Later on Tuesday the Fed will release minutes of its March
18 policy meeting that could offer clues on how far
policymakers are prepared to cut the benchmark rate.
Any weakness in economic data -- such as the U.S. pending
home sales for February due at 10 a.m. (1400 GMT) -- could tip
the balance of expectations in favor of a bigger rate cut this
Traders were also awaiting Friday's meeting of Group of
Seven finance ministers and central bankers, where a broad
range of proposals aimed at restoring confidence in the
battered banking system will likely be discussed.
(Additional reporting by Jamie McGeever in London; Editing by
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