Tuesday April 8, 2008 - 22:41:12 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar edges lower versus euro on Fed minutes
(Recasts, adds comments, changes byline)
By Vivianne Rodrigues
NEW YORK, April 8 (Reuters) - The U.S. dollar edged lower
versus the euro on Tuesday as minutes of the last Federal
Reserve meeting showed policy makers felt that a prolonged and
severe economic downturn can't be ruled out.
The dollar remained steady against the yen and a basket of
currencies, though, on growing views the economic slump in the
United States could spill over to other countries and prompt
their central banks to cut interest rates.
Those concerns appeared to be backed by data showing a
sharp drop in British home prices, raising the chances the Bank
of England will cut interest rates by 50 basis points at its
policy meeting on Thursday.
A reluctance by traders to buy the euro aggressively in the
absence of major economic data from both the United States and
the euro zone, and ahead of central bank meetings on Thursday,
also helped put a cap on any dollar drop, analysts said.
"There is a shift, especially on the euro side, a
realization that maybe the European economy will not be able to
withstand the U.S. slowdown," said Matthew Strauss, senior
currency strategist at RBC Capital Markets in Toronto.
"The market is not yet prepared to price in cuts by the
ECB. On Thursday, the ECB will probably continue to emphasize
the upside effects of inflationary pressures in the economy,
but ultimately it will have to move from the sidelines and cut
rates before year-end."
Aggressive monetary easing by the Fed in a bid to prop up
the economy following a severe downturn in the housing sector
tilted the yield appeal in the euro's favor and has been the
main driver behind the dollar's sell-off.
Since mid-September, the Fed has lowered its benchmark
overnight lending rate by 3 percentage points to 2.25 percent.
The European Central Bank has kept its refinancing rate at 4
In late afternoon trading in New York, the euro was 0.1
percent higher at $1.5715 <EUR=>. Against the yen, the dollar
was up 0.1 percent higher at 102.50 yen <JPY=>.
The New York Board of Trade's dollar index, which tracks
the greenback's performance against six major currencies,
climbed to a session high of 72.376 .DXY, but it last traded
around 72.229, nearly flat on the day.
Members of Fed's policy-setting committee worried at their
most recent meeting that the housing and financial market
stress could trigger a nasty slide in the economy, even as
inflation pushed higher, minutes of the meeting released on
Tuesday showed. For more details, see [ID:nN08375266].
"The minutes are relatively dovish on interest rates and
bearish on the U.S. economy," said Dustin Reid, a senior
currency strategist at ABN Amro in Chicago. "But markets have
already priced that in. That's why we're seeing very little
Sterling was the biggest loser of the major currencies on
Tuesday, falling nearly 1 percent to $1.9693 <GBP=>. It dived
to a record low of 78.97 pence per euro <EURGBP=> earlier.
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.
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 Lucia Mutikani and Gertrude
Chavez-Dreyfuss; Editing by Chizu Nomiyama)
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