Friday May 30, 2008 - 11:56:50 GMT
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Reuters - www.reuters.com
FOREX NEWS - Euro pressured vs dlr even as inflation surges
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, May 30 (Reuters) - The euro headed for its biggest
weekly percentage fall in three months versus the dollar
on Friday due to signs of a slowing euro zone economy, even as
the region's inflation rose back to record highs.
Euro zone inflation rebounded to its historic peak of 3.6
percent in May, data showed on Friday, while the April
unemployment rate was unchanged at 7.1 percent.
And German retail sales unexpectedly fell for the second
month in a row in April, suggesting cracks in the region's
economy which until recently had shrugged off a global slowdown.
Analysts said the ECB was facing the same dilemma as some
other central banks, including the Bank of England, as
economic growth was falling while energy costs were rocketing.
"The euro is no different to many other currencies -- stuck
between a rock and a hard place with slowing growth and rising
inflation," JP Morgan G10 strategist Kamal Sharma said.
"The euro zone HICP numbers were stronger than expected but
from a markets perspective it's well known that inflation is
likely to remain above the ECB's target in the near term. But
against the backdrop of slowing growth...the ECB is unlikely to
pull the trigger on rate hikes through the rest of the year."
ECB President Jean-Claude Trichet in an interview published
on Friday said that the central bank will do everything it can
to preserve price stability and reinforce expectations of low
The dollar has also garnered broad support this week from a
further retreat in oil prices from last week's record $135.09
per barrel CLc1, a jump in U.S. bond yields and slight upside
suprises in U.S. data that helped ease concerns about the U.S.
The euro was flat on the day at $1.5513 <EUR=>, near a low
of $1.5463 hit early in London for the first time since
mid-month. The dollar was little changed at 105.38 yen <JPY=>
hovering near a three-month high of 105.87 hit in Thursday.
DOLLAR SUSTAINED, DATA AHEAD
Oil prices fell below $125 per barrel CLc1 from a record
high of $135.09 hit last week.
Moves in oil prices are seen as key for the dollar, as
recent surge has fanned fears about the ability of U.S.
consumers and businesses to weather the credit- and housing
The dollar has tended to fall when oil prices surge due to
speculation that oil-producing countries may use the increased
dollar-denominated windfall from crude exports to buy euros and
other currencies to diversify their portfolios.
The dollar was boosted after data on Thursday showed U.S.
gross domestic product grew at a 0.9 percent annual rate in the
first quarter, in an upward revision from the 0.6 percent rate
estimated a month ago [ID:nN29454340].
Two-year U.S. Treasury yields <US2YT=RR> surged to a near
five-month high on Thursday after Dallas Fed President Richard
Fisher said on Wednesday it would be "unacceptable" for the Fed
to be viewed as accepting higher levels of inflation.
Investors awaited the core PCE price index for April, the
Fed's favourite inflation gauge, for clues about price growth.
The U.S. personal income/spending data is due at 1230 GMT.
Economists in a Reuters survey expect a rise of 0.2 percent
in income and a 0.2 percent increase in spending. In March,
income rose 0.3 percent and spending rose 0.4 percent.
(Reporting by Veronica Brown; Editing by Ian Jones)
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