Tuesday April 22, 2008 - 10:32:40 GMT
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Reuters - www.reuters.com
FOREX NEWS-Surging oil, rate view lifts euro near record high
(Recasts, changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, April 22 (Reuters) - The euro rallied towards recent
record highs on Tuesday as surging oil prices and hawkish
rhetoric from European Central Bank policymakers overshadowed
earlier concerns about the European banking sector.
Rising inflation stemming from soaring food and energy
prices came firmly into view as U.S. crude oil hit a historic
high, topping the $118 per barrel mark CLc1.
This gave added impetus to inflation-busting talk from ECB
policymakers, determined to contain the impact of rising prices.
ECB Governing Council member Christian Noyer said the bank
would do what is needed to bring inflation back to its target
level of just below 2 percent, adding that it would "move rates"
That followed comments from Governing Council member Yves
Mersch, who said the ECB has to ask itself each month whether a
rate rise is needed to control inflation. [ID:nL21257173]
"We have been hammered by hawkish comments from ECB members
overnight and during the past week, aggressive comments
suggesting that not only is the ECB planning to leave rates on
hold, but they are also actively considering raising rates to
stamp on inflation," said Teis Knuthsen, head of FX research at
Danske Markets in Copenhagen.
"That puts a certain perspective on the relative economic
stance between the U.S. and the euro area," he added.
The euro rallied, having earlier fallen on news that
Germany's BdB banking association has taken control of
Duesseldorfer Hypothekenbank (DUOGg.F: Quote, Profile, Research) and planned to sell it
after the property lender ran into problems linked to the
One of Duesseldorfer Hypothekenbank's management board
members later told Reuters it is not facing problems that could
threaten its existence.
The single currency was last quoted up a quarter percent on
the day at $1.5946 <EUR=>, nearing last week's record high at
$1.5983 according to Reuters data.
The dollar was down 0.1 percent at 103.14 yen <JPY=> and 0.1
percent lower versus a basket of six other major currencies at
Any dips in the euro from last week's historic high have
been contained by a view that interest rate differentials are
set to move further in its favour, as the ECB is seen keeping
interest rates at least at a six-year high of 4.0 percent for a
By contrast, markets expect the Federal Reserve to lower
rates further from the current 2.25 percent at a policy meeting
on April 29-30.
Fresh impetus for such expectations -- which could drag the
dollar lower -- could come from U.S. housing data at 1400 GMT
with the annual rate of existing home sales seen easing to 4.92
"Prices may have at least another 10 percent to fall. (This
is) not an environment where home sales volumes look likely to
pick up," said Calyon in a client note.
"In a quiet day, this might be sufficient to force EUR/USD
above $1.60 though if the earlier efforts to get above $1.50 are
illustrative, we may be in for a longer wait."
The euro stopped short of $1.50 on several occasions before
finally powering through that level in late February.
The Bank of Canada will announce its decision on rates at
1300 GMT, with many dealers expecting it to lower them by 50
basis points to 3.0 percent. The Canadian dollar eased to
C$1.0075 per U.S. dollar before the decision.
Jitters about the health of European financial institutions
comtinue to simmmer however.
Royal Bank of Scotland (RBS.L: Quote, Profile, Research) announced a record 12 billion
pound rights issue to cover a potential 5.9 billion pound
writedown on the value of toxic assets and help rebuild a
stretched balance sheet.
Worse than expected results on Monday from Bank of America
Corp (BAC.N: Quote, Profile, Research), the biggest U.S. retail bank, added to nerves --
shattering a tentatively positive outlook on the ongoing credit
crisis taken from stronger U.S. bank earnings last week.
(Editing by Gerrard Raven)
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