Monday June 2, 2008 - 11:43:25 GMT
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Reuters - www.reuters.com
FOREX NEWS-Sterling falters on B&B, PMI weighs euro
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, June 2 (Reuters) - Sterling fell one percent versus
the dollar on Monday on news of problems at the UK's largest
buy-to-let mortgage lender, while the euro eased as euro zone
manufacturing activity hit its lowest in almost three years.
Bradford & Bingley (BB.L: Quote, Profile, Research) issued a stark warning on the
state of the UK mortgage market and slashed the price of its
emergency rights issue to secure a private equity lifeline,
hitting bank shares across Europe.
In the bleakest outlook yet from a British lender, B&B also
said it had tumbled to a loss for the first four months of the
year. The news came as official data showed approvals for new
home loans in Britain hit a record low in April [nL02574957].
"Against this background, it's hard to get much of an
attraction to sterling at the moment. We are going to get pieces
of bad news like this, we know that not just UK banks but
generally the financial sector troubles are not entirely over,"
said Mitul Kotecha, head of FX research at Calyon in London.
"Any recovery is not as simple or as straight-line oriented
as perhaps some people expect and this sort of thing reflects
that," he added.
In the euro zone, the Purchasing Managers' Index of
manufacturing activity in May slipped to 50.6, its lowest since
August 2005 [nL27558837], underlining slowing growth in the
region even as inflation surges.
"The aggregate manufacturing number is precariously close to
the level that indicates contracting output," said Adam Cole,
head of currency strategy at RBC, adding that more signs of
economic weakness could further weaken the single currency.
Sterling was trading down 0.9 percent at $1.9633, having hit
one-week lows of $1.9597 <GBP=> after the B&B news plus poor UK
mortgage lending and manufacturing PMI data.
The yen rose 0.6 percent against the dollar <JPY=> and euro
<EURJPY=>, reflecting tempered risk appetite as European stocks
faltered , led by losses in bank shares.
Meanwhile the euro was 0.1 percent weaker at $1.5538 <EUR=>,
having struck a two-week low of $1.5460 on Friday.
The dollar continued to garner broad support, having
rebounded on the prospect of eventual U.S. monetary tightening
from 2 percent currently to deal with soaring inflation.
STAGNATING EURO ZONE?
The euro has retreated some 3 percent from a record high of
$1.6018 hit in April, according to Reuters data, with interest
rate speculation helping the U.S. currency score back-to-back
monthly gains against the single currency in April and May for
the first time since early 2007.
U.S. Treasury Secretary Henry Paulson on Monday defended the
dollar's status as the world's reserve currency and said its
recent decline was only a small factor behind a surge in oil
Despite signs of economic weakness, the European Central
Bank has stuck to its position of ensuring inflation does not
get out of hand, which suggests it will be wary of cutting
interest rates from 4 percent to help spur growth.
ECB President Jean-Claude Trichet reinforced this view after
he told French online information site Mediapart in an interview
published on Sunday that governments should not be complacent
about high inflation and market corrections [ID:nL01176973].
The ECB is one of a slew of central banks that will hold
meetings on interest rates this week, although few in the market
expect that changes to borrowing costs will result from any of
The ECB, the Bank of England and the Reserve Bank of New
Zealand all announce decisions on Thursday, while the Reserve
Bank of Australia will decide on policy on Tuesday.
Investors will look to the Institute for Supply Management's
manufacturing index later in the day for a snapshot of the U.S.
factory sector. The ISM index is expected to be 48.5 in May,
little changed from 48.6 in the previous month and showing mild
contraction in manufacturing. [ID:nN30302125]
(Additional reporting by Naomi Tajitsu)
(Reporting by Veronica Brown; Editing by Chris Pizzey)
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