Monday June 23, 2008 - 10:48:52 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro bruised by Ifo, PMIs, dlr bought ahead of Fed
* Below forecast Ifo, PMIs send euro to session lows
* Dollar bought ahead of this week's Fed meeting
* FX market shrugs off Saudi's oil output pledge
(Changes byline, updates prices, adds quotes)
By Veronica Brown
LONDON, June 23 (Reuters) - The euro fell sharply on Monday
after contraction in the euro zone's manufacturing and service
sectors, while the dollar gained as some investors bet on a
hawkish message from the Federal Reserve later in the week.
Markets are pricing in just a 10 percent chance of a Fed
rate hike this week from the current 2 percent FEDWATCH, but
see scope for it to start paving the way for future tightening.
In contrast, although the European Central Bank has
signalled it may well raise rates in July, policymakers have
lined up to point out that the move is likely to be a one off --
a view further supported by Monday's crop of weak data.
"We're seeing weakening growth in the euro area and today's
data just confirms that," said Derek Halpenny, senior currency
strategist at BTM-UFJ in London.
The euro was down half a percent $1.5524 <EUR=> by 1013 GMT,
having hit session lows of $1.5500 after the data, while the
dollar index .DXY added 0.6 percent to 73.421.
The euro fell 0.2 percent to 167.15 yen <EURJPY=>, around a
yen below the 11-month high struck on Friday.
Preliminary euro zone services PMI, which covers companies
from cafes to banks, fell to 49.5 in June, while its
manufacturing equivalent hit 49.1 -- with both indices slipping
into contraction territory below the 50.0 watermark.
At the same time, the German Ifo business climate index fell
more than expected to 101.3 in June -- its lowest since December
2005. Ifo's current conditions and expectations indices also
came in below consensus.
Following on from the data, the Bundesbank said Germany's
economy is set to contract slightly in the second quarter of
this year after expanding at its strongest clip since 1996 ni
the first three months.
Although analysts said it was probably too late for the ECB
to abandon its plans for a July rate hike to 4.25 percent, they
admitted the data further reduced the chances of any follow on
"The falls are probably not sharp enough to stop the ECB
hiking in July. It would take more data on the downside for
inflation for them to wait. But the data today will cause some
intense debate about rate-setting," said Juergen Michels,
economist at Citi.
Currency markets paid little attention to the oil price
CLc1, which rose above $136 a barrel despite Saudi Arabia
promising to pump more oil [ID:nSP134840].
BTM-UFJ's Halpenny said the breakdown of the inverse
correlation between oil and the dollar could probably be traced
back, in part, to recent comments made by Fed Chairman Ben
"What Bernanke did was to say to the markets that they don't
necessarily view oil anymore as a negative on growth. It seems
likely that they would respond to rising oil by tightening
monetary policy, so that is a supportive feature for the
dollar," Halpenny said.
(Reporting by Veronica Brown; Editing by Ron Askew)
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