Wednesday May 7, 2008 - 11:57:40 GMT
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Reuters - www.reuters.com
FOREX NEWS-Weak data drives euro lower, dollar broadly firm
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, May 7 (Reuters) - Weak euro zone maufacturing and
retail data combined to send the euro towards 5-week lows versus
the dollar on Wednesday, while the greenback garnered support
after hawkish comments from a Federal Reserve official.
Euro area retail sales were much weaker than expected,
falling in monthly as well as annual terms [ID:nL07774862],
while German manufacturing orders unexpectedly fell by 0.6
percent in March -- underlining concerns about the slowing
A run of poor economic data has pressured the single
currency in recent weeks after it hit a record high above $1.60,
peeling away perceptions that the euro area was insulated from
the U.S. downturn.
"The euro zone retail sales were particularly disappointing,
it does suggest that European consumers are slowing down. All
the data suggest the outlook is deteriorating for Europe and
that's consistent with downward pressure on the euro," said Teis
Knuthsen, currency strategist at Danske Markets in Copenhagen.
French trade data added to the bearish picture; the single
currency's second biggest economy reported a record trade
deficit for March.
Still, the European Central Bank is expected to hold
interest rates steady on Thursday at 4 percent, leaving the
focus on the post-decision briefing by ECB president Jean Claude
Trichet, who is expected to maintain a hawkish line on
The euro traded 0.6 percent down on the day at $1.5433
<EUR=>, near a five-week low hit last week at $1.5359 and around
3.5 percent off a record $1.6018 struck on April 22.
The dollar rose more than half a percent to 105.33 yen
<JPY=>, nearing a two-month high around 105.70 yen touched on
Friday. Against a basket of currencies the dollar firmed half a
percent to 73.413 .DXY.
PREMATURE DOLLAR STRENGTH?
The dollar drew early support from a Federal Reserve
official's comments that helped cement views that the U.S.
central bank's cycle of aggressive interest rate cuts may be
Kansas City Fed President Thomas Hoenig said late on Tuesday
that rates will need to be raised in a timely way as the central
bank grapples with a serious threat of inflation, prodding the
euro towards a five-week low versus the dollar. [ID:nN06528406]
Also boosting the dollar were comments from U.S. Treasury
Secretary Henry Paulson, who told the Wall Street Journal in an
interview that "the worst is likely to be behind us" from the
crisis spawned by surging defaults on U.S. home mortgages.
But some in the market said that investors may be getting
too optimistic about the dollar's outlook as a rate rise by the
Fed was unlikely to help the U.S. economy, given that inflation
pressures have been prompted by high oil prices, rather than
"Interest rates at their currently low level are going to be
necessary for some time, irrespective of inflation pressures to
make sure that a recession or even a depression is avoided in
the United States over the next 12-18 months," said Adam Myers,
market strategist at Credit Suisse.
The inflationary pressures reflected in oil stayed on the
boil, with U.S. crude CLc1 sitting at $121.63 a barrel, not
far off Tuesday's record high at $122.73.
Further clues on the outlook for the probelmatic U.S. homes
sector are expected later with the release of pending home sales
figures for March at 1400 GMT.
(Reporting by Veronica Brown; Editing by Ian Jones)
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