Wednesday April 16, 2008 - 11:02:00 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro surges to record high as inflation rises
(Adds record high, changes byline, updates prices, adds
By Simon Falush
LONDON, April 16 (Reuters) - The euro surged to a record
high against an ailing dollar on Wednesday as strong inflation
data firmed views that European interest rates will hold steady
and as concerns mount on the health of the U.S. economy.
Euro zone inflation hit a record high of 3.6 percent in
March on the back of surging energy and food prices, adding fuel
to the view that the European Central Bank is not going to cut
rates from the current 4 percent in the foreseeable future.
The U.S. Federal Reserve, meanwhile, is expected to cut
rates by 25 basis points to 2 percent in an attempt to ease
problems in a slowing U.S. economy.
"The main driver is the euro zone inflation data that
continues to reinforce the hawkish stance of the ECB, and that's
in stark contrast to the Federal Reserve which we expect to
continue easing monetary policy," said Lee Hardman, currency
economist at BTM UFJ.
By 1035 GMT the euro had reached $1.5967 <EUR=> according to
Reuters data, up 1 percent on day and the highest level since
its launch in 1999. The single European currency is now nearly
90 percent higher than its trough in October 2000.
The euro also reached an all-time high versus the pound at
80.76 pence <EURGBP=>.
The dollar fell by 0.9 percent to 100.90 yen <JPY=>.
It continued to suffer from jitters about the health of the
financial sector with a Wall Street Journal report that Merrill
Lynch would announce fresh asset writedowns of $6-$8 billion
when it reports quarterly earnings on Thursday [ID:nL16709272].
"Some people think the worst of the banking problems is
behind us, but poor earnings and more writedowns could have a
hand in setting the market's direction," said Steve Barrow,
chief currency strategist at Bear Stearns.
RESULTS IN FOCUS
JPMorgan Chase and Co (JPM.N: Quote, Profile, Research) will announce their
first-quarter earnings later on Wednesday, in addition to
big-name corporations like Coca-Cola (KO.N: Quote, Profile, Research) and eBay (EBAY.O: Quote, Profile, Research)
The U.S. currency reversed gains made against the euro after
data on Tuesday showed that U.S. producer prices climbed faster
than expected in March, while a gauge of New York manufacturing
activity rose in April. [ID:nN15448941]
European Central Bank officials have maintained a tough
stance on inflation, suggesting it is unlikely to cut interest
rates from the current 4 percent any time soon.
Later on Wednesday, investor attention will turn to the U.S.
consumer price index for March as well as data on housing starts
and industrial output. [ECI/US] ECONUS
U.S. interest rate futures show investors see a roughly 80
percent chance of the Fed lowering rates by 25 basis points at
its April 29-30 policy meeting, and a 20 percent chance of a 50
basis point cut.
(Editing by Gerrard Raven)
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