Thursday May 8, 2008 - 09:24:01 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro hits 2-mth low vs dollar; ECB, Trichet eyed
(Changes dateline, byline, adds quotes, updates prices)
By Veronica Brown
LONDON, May 8 (Reuters) - The euro hit a two-month low
against the dollar on Thursday, hurt by a report that U.S. and
European officials want the dollar to strengthen, as markets
awaited a European Central Bank rate decision and statement.
The yen jumped, pushing the dollar and the euro more than
one percent lower as sagging stock markets encouraged the
unwinding of carry trades.
The dollar hit a two-month high against a basket of major
currencies as a Financial Times report said the United States
and Europe now have a united desire to see the dollar strengthen
against the euro, citing officials on both sides of the Atlantic
The single currency has been on the back foot in recent
weeks after hitting a record high of $1.6018 on April 22 as poor
economic data has started to eat away at a perception of a
resilient euro area economy.
Mitul Kotecha, head of global foreign exchange research at
Calyon, said the FT report had placed limits on the dollar's
"I think the big surprise in the story is that we know that
European officials are happy with a firmer dollar but the fact
that there is explicit comment saying U.S. officials are happy
with the dollar's rebound is perhaps the reason markets have
reacted as much," he said.
"Until now it seems to be an open door policy for dollar
weakness but clearly there are limits," he added.
The ECB faces a policy poser in the current climate of
sky-high food and oil prices and slowing growth as the currency
zone is proving vulnerable to fallout from the ongoing global
With this in mind, even though interest rates are expected
to be left on hold at 4 percent after the ECB meets later on
Thursday, markets will be scrutinising every word from ECB
president Jean-Claude Trichet's post-decision news briefing at
"Trichet will still need to strike a hawkish tone.
Nevertheless the central bank will not want to be perceived as
neglecting growth and we expect Trichet will also place a far
greater emphasis on downside risks to the economy," UBS
strategists said in a note to clients.
The euro fell to $1.5287 <EUR=>, its lowest since March 11
and down 4.5 percent from April's record high. The dollar was up
0.18 percent against a basket of six major currencies at 73.658,
having earlier hit a two-month high at 73.895 .DXY.
The yen rose broadly as stock markets fell, with the euro
falling 1.17 percent to 159.19 yen <EURJPY=>, while the dollar
lost around 1 percent, before trimming losses to stand at 103.85
yen, down 0.7 percent <JPY=>.
A sharp drop in euro zone retail sales and weaker than
expected manufacturing data on Wednesday combined to raise
worries about the region's economic outlook further and revived
expectations for eventual rate cuts.
While the ECB was widely seen standing pat, dealers said
calls from a minority of analysts for a rate cut in Britain from
the Bank of England on Thursday were growing.
Economic data in Britain has reflected a sharply slowing
economy, with house prices slipping rapidly.
Most economists polled by Reuters expect interest rates to
stay on hold at 5 percent after the BoE's policy meeting at 1100
GMT, while 40 of 65 predict a cut will come in June [BOE/INT].
However a surprise cut on Thursday can't be ruled out.
"The timing of the move seems to be the issue here. We're
looking for no change, but it seems that there is a growing
minority expecting a cut today," Calyon's Kotecha said.
Elsewhere, the New Zealand dollar slid more than 1 percent
versus the U.S. dollar <NZD=> after data showing the country's
biggest quarterly employment drop in 20 years stoked
expectations for its central bank to start cutting rates later
in the year. [nWEL1952]
(Reporting by Veronica Brown; Editing by Gerrard Raven)
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