Wednesday April 16, 2008 - 21:14:34 GMT
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Reuters - www.reuters.com
Forex Research - Carry Trades Hold Strong, But Stale Price Action Could See A Shake Up Tomorrow
(Updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 16 (Reuters) - The dollar plummeted to
lifetime lows against the euro on Wednesday, as a steep decline
in U.S. home construction and record high euro zone inflation
underscored the contrasting growth paths of the two economies.
The euro rose to $1.5977 <EUR=> against the dollar,
according to Reuters data, its strongest since its 1999 launch,
as data showing a record 3.6 percent advance in euro zone
prices last month suggested the European Central Bank won't cut
interest rates soon. The euro zone single currency also posted
its largest daily increase in three weeks.
In contrast, U.S. benchmark interest rates are still seen
headed lower, especially after reports showed a sharp slide in
March housing starts and an unexpectedly tame core inflation
reading, stripping out volatile food and energy costs. For
more, see [ID:nN16322404] [ID:nN16324181].
"The divergence of monetary policy between the euro zone
and the U.S. is continuing to fuel the euro/dollar's rally,"
said Omer Esiner, a market analyst at Ruesch International in
The Federal Reserve -- the U.S. central bank -- has already
cut interest rates by 3 percentage points since September and
is widely expected to cut them again, to at least 2 percent, in
late April. Meanwhile, euro zone interest rates have been at 4
percent for more than a year.
In late afternoon trade, the euro rose 1 percent to $1.5956
while sterling rose 0.4 percent to $1.9709 <GBP=>.
Ruesch's Esiner said despite the euro's rally, the currency
seems to be losing momentum. "I do get the sense that we're
starting to top out a little bit. I would bet that $1.61-$1.62
is definitely in play, but after that, the euro is going to run
out of steam."
The greenback was changing hands at 101.71 Japanese yen
<JPY=>, off a session low of 100.83 yen, but still down 0.1
percent on the day.
It also fell 0.8 percent to 0.9988 Swiss franc <CHF=> and
weakened more than 1 percent against the Canadian <CAD=> and
Australian <AUD=> dollars.
Data showing an 11.9 percent plunge in housing starts last
month, while just the latest in a steady stream of bleak U.S.
housing data, still managed to shatter the guarded optimism
that had been growing in markets of late, traders said.
The dollar also didn't get much support from the Fed's
anecdotal Beige Book summary of regional conditions, which said
the economy is weakening across much of the United States even
as food, fuel, and raw materials prices are rising.
"Beige Book headlines are suitably soft with the tenor
almost exactly as you would expect for an economy where
domestic demand is probably running negative and only net
exports provides hope for a small positive GDP number for the
quarter," said Alan Ruskin, chief international strategist, at
RBS Greenwich Capital, referring to Gross Domestic Product, a
broad measure of output of goods and services.
Investors are also monitoring U.S. first-quarter earnings
results, although the outcome so far has been mixed.
Earlier, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), the third-largest
U.S. bank, said its quarterly profit fell 50 percent in the
first three months of the year, while The Wall Street Journal
reported Merrill Lynch (MER.N: Quote, Profile, Research) will post $6 billion to $8
billion in write-downs when it releases results on Thursday.
But U.S. stocks rallied to close more than 2 percent higher
on Wednesday as investors were encouraged by earnings from
Intel Corp. (INTC.O: Quote, Profile, Research) and IBM (IBM.N: Quote, Profile, Research).
(Editing by James Dalgleish)
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