Monday June 9, 2008 - 11:07:17 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro rides high on July rate rise speculation
* Euro hits six-week high vs dlr on expected ECB rate rise
* High oil price keeps dlr under pressure
* Yen falls broadly, hits seven month low versus euro
(Changes byline, updates prices, adds quotes)
By Simon Falush
LONDON, June 9 (Reuters) - The euro hit a six-week high
versus the dollar and a seven-month peak against the yen on
Monday, bolstered by expectations of a European Central Bank
rate hike next month.
Prospects of such a move were flagged on Thursday when the
ECB left policy on hold at 4 percent as forecast, but president
Jean-Claude Trichet said it was on high alert over inflation and
a number of policymakers supported raising rates.
Bets of a July hike were supported further by hawkish
comments from his colleagues on Friday.
In a sign that the European economy is taking a stronger
euro in its stride, the Sentix group's monthly index of
sentiment in the euro area rose to 5.2 from 3.5, its highest
level since January.
In contrast, the dollar's yield appeal was hit on Friday by
news of the biggest jump in the U.S. unemployment rate in 22
years, to 5.5 percent in May, denting expectations the Federal
Reserve will hike interest rates before the year is out.
"Investment banks have revised their forecasts and are now
predicting a rate hike as soon as July as price pressures mean
that the ECB will start to tighten rates," said John Hydeskov,
senior FX analyst at Danske Markets in Copenhagen.
"This has pushed up euro/dollar as it combined with the
lousy unemployment data (from the U.S.) which was the latest in
a stream of really bad data."
Oil prices also weighed on the greenback, with crude holding
within $2 of Friday's record high $139.12 per barrel [O/R].
"It seems like there is a strong correlation between the oil
price and euro/dollar, with the ECB being more trigger happy
when it comes to reaction to prices while the Fed is more
concerned about growth," Hydeskov added.
The euro rose to a six week high of $1.5845 <EUR=>, and set
a seven-month peak versus the ultra-low yielding Japanese
currency at 167.15 yen according to Reuters data <EURJY=>.
The yen was also pressured against the dollar which rose 0.8
percent to 105.85 yen <JPY=>.
The pound got a rare boost from higher than expected UK
factory gate inflation data, but it remained pressured near an
all-time low versus the euro <EURGBP=> as a slew of weak UK data
in recent weeks has undermined confidence in the UK economy.
A Reuters poll taken after Thursday's Trichet comments
showed a median 47 percent chance of a July rate hike to 4.25
percent [ECB/INT], compared to the majority expecting that the
next ECB move would be a cut in a poll taken a week earlier.
However economists remained more cautious on ECB rate
expectations than markets.
"With markets now pricing in 75 bps of ECB hikes by year end
however, we think there is a reasonable chance ECB officials
will attempt to calm such speculation," Commerzbank Corporates &
Markets said in a research note.
Further clues on the depth of the U.S. economic slowdown
will come with April pending home sales figures at 1400 GMT.
The calendar also features speeches from ECB Governing
Council member Guy Quaden as well as several Fed officials,
including chairman Ben Bernanke at 2200 GMT.
Last week Bernanke surprised markets with a rare warning on
currencies, saying the Fed was paying attention to the moves in
the dollar and the implications for inflation.
(Editing by Ron Askew)
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