Wednesday April 9, 2008 - 10:56:37 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar slips as Fed casts longer shadow on economy
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, April 9 (Reuters) - The dollar weakened broadly on
Wednesday as investors contrasted Federal Reserve comments
pointing to continued U.S. economic weakness with expectations
for further inflation-busting talk from the euro zone.
An ailing sterling fell to record lows against the euro at
80 pence, as falling UK consumer morale and an IMF downgrade to
growth stoked debate on how aggressively the Bank of England
might cut rates after its policy meeting on Thursday.
The dollar found respite from steep falls versus the euro
last week but the rally was cut short after minutes from the
Fed's last policy meeting showed some central bankers believed
"a prolonged and severe economic downturn could not be ruled
Despite data earlier confirming that euro zone economic
growth had slowed in the last quarter of 2007, investors were
still contrasting a relatively robust euro zone economy with an
ailing U.S. -- in the grip of a major slowdown.
"When the FOMC minutes came out they were a lot more dovish
than some people would have expected," UBS currency strategist
Geoffrey Yu said from Zurich.
"The market is not too convinced on the euro zone but you
are being forced to choose between the less of two evils right
now. People are still preferring to chase the euro higher rather
than the dollar," he added.
The European Central Bank (ECB) is expected to keep rates
steady at 4 percent after its policy meeting on Thursday with
analysts attention focused more on the post-decision press
"ECB will undoubtedly preach a fire and brimstone sermon on
inflation risks," Danske Bank said in a note to clients.
The euro was up 0.1 percent at $1.5724 <EUR=>, while the
dollar fell 0.2 percent to 102.35 yen <JPY=> -- reversing
earlier gains that took it near a one-month high.
The euro hit a record high of 80 pence <EURGBP=> early in
the European session, before pulling back to 79.86 pence, up 0.1
percent on the day.
FOMC minutes released on Tuesday showed the Fed remains
concerned about further restrictions on credit availability and
ongoing weakness in the U.S. housing market, underscoring market
expectations for further Fed rate cuts. [ID:nN08375266]
Futures markets see a 56 percent chance of the Fed lowering
interest rates by 25 basis points from the current 2.25 percent
at a policy meeting in late April, and 44 percent chance of a
more aggressive 50 basis points cut FEDWATCH.
CENTRAL BANKS, G7 MEET
Investors were also focusing on an upcoming meeting of G7
finance officials in Washington starting on Friday to see
whether delegates will show a united front on efforts to quell
ongoing problems in credit markets.
The International Monetary Fund said on Tuesday that turmoil
in credit markets could spread with losses possibly approaching
$1 trillion. [ID:nN08343900]
The Bank of Japan held rates at 0.5 percent on Wednesday and
lowered its economic outlook, while Governor Masaaki Shirakawa
said that nations should take steps to deal with the financial
market turmoil that best suit their respective economies.
A Reuters poll taken on Wednesday shows the Japanese central
bank's next rate move will be a rise, but that this would not
happen until the first half of 2009. [BOJ/INT]
Currency markets also digested reports that Citigroup Inc
(C.N: Quote, Profile, Research) was close to a sale of leveraged loans and bonds to a
group of private equity firms.
People familiar with the situation said on Tuesday that
Citigroup, the largest U.S. bank, was close to selling about $12
billion of leveraged loans and bonds to private equity firms
including Apollo Group, Blackstone Group LP and TPG.
Citigroup, Apollo, Blackstone and TPG declined to comment.
Despite some recent signs of stabilisation, concerns about
the fallout from the credit market turmoil were likely to linger
ahead of quarterly earnings announcements by U.S. banks later
this month, traders said. [RESF/US]
(Reporting by Veronica Brown; editing by David
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