Wednesday April 23, 2008 - 09:19:06 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro backs off record high on policymaker talk
(Changes dateline, byline, updates prices, adds quotes
By Simon Falush
LONDON, April 23 (Reuters) - The euro retreated from a
record high set the previous session versus the dollar on
Wednesday after a European Central Bank policymaker toned down
earlier hawkish comments on interest rates.
The euro pierced a record high above $1.60 on Tuesday after
hawkish comments from ECB Governing Council members Christian
Noyer and Yves Mersch prompted investors to speculate whether
the central bank's next move would be a rate hike rather than a
However Noyer later said the markets had read too much into
his comments, the Wall Street Journal reported, and this
prompted investors to pare back more aggressive long positions
in the euro.
"The market is giving some credibility to Noyer backing off
hawkish comments, it seems there's more sensitivity to interest
rates," said Adam Cole, global head of currency strategy at RBC
By 0755 GMT the euro was down 0.1 percent at $1.5970, off
the record peak of $1.6018 set the previous session <EUR=>. The
euro also edged lower to 164.50 yen <EURJPY=R>, off a four-month
high of 164.95 yen hit on Tuesday.
The euro is up more than 9 percent this year and its breach
of $1.60 prompted chairman of the Eurogroup of finance ministers
Jean-Claude Juncker to say the euro's exchange rate is
excessively volatile, which also prompted a slight dip in the
Euro zone manufacturing activity fell to a near three-year
low, the Purchasing Managers Index showed and export orders
shrank for the first time since May 2005 [ID:nL22896419].
This indicates that the currency's strength may be starting
to impact the wider economy, though the data had little impact
on the euro.
The dollar held steady near 103.00 yen <JPY=>, having pulled
back from a seven-week high of 104.66 yen hit late last week.
The Australian dollar climbed to a 24-year high of $0.9516
<AUD=> after data showed that core inflation in Australia
accelerated to its fastest pace in nearly 17 years last quarter.
The rise in core inflation was higher than many had expected
and suggested that Australian interest rates would remain at a
12-year high of 7.25 percent for some time. [ID:nSYD200470]
The euro's rally on Tuesday had been stoked by remarks by
ECB officials, including Noyer's comments in an interview with
French radio network RTL, that stirred talk that the ECB's next
move may be to raise interest rates.
But Noyer later said markets had misinterpreted his remarks
as a hint on the direction in which interest rates might move,
the WSJ reported in its online edition.
"I would never engage in a discussion about the future path
of interest rates, simply because nobody knows. It would be
dangerous to make predictions in either direction," the WSJ
quoted Noyer as saying.
The ECB is expected to keep interest rates on hold at 4.0
percent for a while, in contrast to the U.S. Federal Reserve,
which is expected to lower interest rates from the current 2.25
percent later this month. FEDWATCH.
The euro has also been supported by the recent jump in crude
oil prices, which hit a record high on Tuesday CLc1,
underscoring market expectations that the ECB would need to stay
vigilant on inflationary pressures.
"As long as the trend of rising oil prices stays, the euro
looks set to go further up, given that the surge in oil could
further hurt the U.S. economy and therefore the dollar," said
Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ
Trust Bank in Tokyo.
(Editing by Stephen Nisbet)
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