Thursday April 17, 2008 - 12:36:57 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro backs off historic peak after Juncker FX comments
(Changes byline, updates prices, adds comment)
By Veronica Brown
LONDON, April 17 (Reuters) - The euro retreated sharply from
a record high near $1.60 versus the dollar on Thursday, with
profit-taking sped up by comments from Eurogroup Chairman Jean
Claude-Juncker speaking out against the single currency's rise.
Juncker said markets did not correctly understand the Group
of Seven industrialised nations' message on forex, repeating
that the G7 stressed it did not like excessive volatility as
that was bad for global growth.
He also said he did not consider the euro's rise against the
dollar to be desirable.
"It's created confusion in the market. Before the comments,
the euro was at all-time highs and the market is tense, so
investors are quick to take profits on long positions," said
Niels Christensen, currency strategist at Nordea.
The euro's wings were also bent by quarterly results from
Merrill Lynch (MER.N: Quote, Profile, Research) and Bank of New York Mellon (BK.N: Quote, Profile, Research).
The banking results provided some relief to some investors
worrying about the impact of the global credit crunch on
The euro had broken up to $1.5983, a record high according
to Reuters data, before profit-taking kicked in. The Juncker
comments caused it to slide sharply, leaving it down 0.5 percent
at $1.5870 <EUR=>.
But with the European Central Bank set on combating
inflation and the U.S. Federal Reserve seen cutting interest
rates further to limit damage from the ongoing credit market
crisis, analysts said the euro's broad uptrend remained intact.
ECB Governing Council member Axel Weber demonstrated his
hawkish credentials in the wake of Wednesday's record high
inflation data for March, saying that the central bank has to
fight the risk of broad-based second round effects proactively
and decisively [nWEB1985].
"There's a clear divergence between what matters for the
dollar and what matters for the euro. This continued divergence
in policy, the bias towards further Fed easing and the hawkish
commentary coming out the the ECB does suggest ultimately we'll
make a break above the $1.60 level," said Kamal Sharma, G10
strategist at JP Morgan.
PORT IN A CREDIT STORM
The crisis in credit markets was reflected in a sharp
widening of the spread on two-year U.S. interest rate swaps to
their widest level in about five weeks.
The interbank cost of borrowing three-month dollars rose its
largest amount since August 2007 -- when the global crisis in
credit markets started [nL17867355].
Broad dollar sentiment was undermined on Wednesday after
data showing U.S. housing starts dropped by 11.9 percent last
month and that March consumer prices rose a less-than-expected
That bolstered expectations for the Fed to cut rates by at
least 25 basis points from 2.25 percent in late April, denting
the U.S. currency's yield appeal.
U.S. borrowing costs have been slashed 3 percentage points
since September to 2.25 percent, while the ECB is expected to
stand pat at 4 percent for some time.
"The euro is probably one of the only safe ports in the
current credit-tightening storm, and that's been giving euro a
little bit of a boost," said Paul Robson, currency strategist at
RBS Global Banking.
Meanwhile sterling got a shot in the arm after a Treasury
source said British authorities could announce as early as next
week the details of a plan to ease tight conditions in the
Speculation has been growing that the BoE could allow banks
to temporarily swap mortgage-backed securities for government
bonds to help ease a lending squeeze. Finance minister Alistair
Darling is due to meet mortgage lenders next week.
Sterling was up 0.3 percent at $1.9804, while the euro fell
0.6 percent to 80.37 -- having hit a record high at 80.98 on
The yen was pressured as gains in stock markets had prompted
some investors to take on carry trades. The dollar was up 0.6
percent to 102.32 <JPY=> while the euro gained 0.5 percent to
(Reporting by Veronica Brown; Editing by Stephen Nisbet) x
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