Thursday June 12, 2008 - 09:50:08 GMT
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Reuters - www.reuters.com
FOREX NEWS -Dlr holds firm; rate outlooks reassessed
* Dollar rally gathers steam, dlr index at 1-month high
* ECB rate outlook tempered
* M+A activity back on radars, with InBev offer
* Peripheral jitters on Irish EU referendum
(Changes dateline, byline, adds quotes, updates prices)
By Veronica Brown
LONDON, June 12 (Reuters) - The dollar hit a one-month high
versus a basket of major currencies, while the euro fell sharply
on Thursday with investors continuing to reassess U.S. and euro
zone rate expectations.
Merger and acquisition activity also pressured euro/dollar,
with Belgium-based InBev -- the world's largest beer producer by
volume -- launching a $46.3 billion bid for U.S. maker of
Budweiser and Michelob. If successful, that would be the third
largest ever foreign takeover of a U.S. company [ID:nL12592065].
Euro sentiment was further undermined as France's economy
minister Christine Lagarde cast a shadow over expectations for a
European Central Bank rate hike in July [ID:nPAB004122].
This followed comments on Wednesday from ECB Executive Board
member Jeurgen Stark who said the central bank is not
considering a series of rate rises, after ECB chairman
Jean-Claude Trichet flagged a possible July rate hike last week
At the same time, the U.S. Treasury and Federal Reserve have
cranked up anti-inflationary language, marking a significant
shift in policy stance there.
"Now we're seeing a dose of reality being kicked into
interest rate sentiment, at least in the short term. Trichet in
my mind was very deliberate in terms of what he said in terms of
a possible rate hike in July," Rabobank strategist Jeremy
"But beyond there I think the window of opportunity for the
ECB is very small and very narrow and Mr Stark et al have
re-identified that as the underlying rationale," he added.
Analysts also cited peripheral jitters as Ireland kicked off
polling on a referendum over EU reforms.
By 0854 GMT, the dollar was up 0.67 percent versus a basket
of six major currencies at 73.743 .DXY, having hit a one-month
high of 73.888. The euro fell as much as 1 percent to $1.5394 --
its lowest in a week.
The dollar rose 0.6 percent 107.46 yen <JPY=>, back near a
four-month peak of 107.75 struck the previous day.
Policymakers in the U.S. and euro area have been outdoing
each other with inflation busting language, boosting the euro
and dollar in turn over the past week.
Analysts say markets have probably gone too far in seeing
the possibility of three Fed interest rate hikes this year
FEDWATCH especially when the economy is already grappling with
a sharp housing decline and record high oil prices.
Any reassessment of how much the Fed could lift rates from 2
percent later in the year may drive the dollar lower, given the
albeit tempered ECB expectations.
"We believe the market is being overly aggressive in its
expectations for the timing and pace of the Fed's removal of
policy accommodation," Calyon strategists said in a note to
A data distraction may come in the form of U.S. retail sales
at 1230 GMT, with investors watching to see how much impact tax
rebate cheques might have had on consumption. Economists polled
by Reuters expect sales rose 0.7 percent on the month in May.
The outcome of Ireland's referendum on the European Union
reform treaty is being watched, with results expected on Friday.
The rejection of the EU constitution by France and the
Netherlands in 2005 was one factor behind the euro's fall that
But analysts were divided on whether the Irish vote would
have much of an impact on the single currency this time.
(Reporting by Veronica Brown; Editing by Chris Pizzey)
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