Wednesday June 25, 2008 - 11:28:14 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro climbs as ECB beats inflation drum
* Inflation comments from ECB officials lift euro
* Euro climbs 0.2 pct vs dlr, up 0.3 pct vs yen
* Next key focus: FOMC decision and statement
(Updates prices, adds comments, changes byline)
By Ian Chua
LONDON, June 25 (Reuters) - The euro rose on Wednesday after
European Central Bank officials warned about persistently high
inflation rates, while the dollar held relatively steady versus
a basket of major currencies ahead of the U.S. interest rate
ECB President Jean-Claude Trichet said inflation in the euro
area was likely to remain high for some time before moderating
only gradually in 2009, adding that inflation risks have risen
in the medium term. See [ID:nL25301341]
His comments were echoed by ECB Council member Christian
Noyer who said inflationary pressures appeared to be a bigger
threat to growth than the subprime crisis, cementing
expectations the ECB will carry out its well telegraphed
intention of raising interest rates next month to keep inflation
expectations in check.
"Foreign exchange markets continue to be sensitive to
inflation more than any other story," said Simon Derrick, head
of currency research at Bank of New York Mellon in London.
"Investors will continue to favour currencies where the
central banks have both the ability and willingness to hike
rates if necessary."
However, caution ahead of the result of the U.S. Federal
Reserve policy meeting due at around 1815 GMT kept the major
currencies in a fairly slim range.
At 1042 GMT the euro was up a modest 0.2 percent versus the
dollar at $1.5588 <EUR=>, having briefly risen above $1.5600.
The single currency rose 0.3 percent against the Japanese
currency to 168.24 yen <EURJPY=> and was nearly 0.1 percent
higher against sterling at 79.00 pence <EURGBP=>.
Versus a basket of major currencies, the dollar was a shade
lower at 73.189 .DXY.
FED STATEMENT KEY
All eyes are now on the conclusion of the two-day Fed
meeting as well as the post-Fed meeting statement.
While no one seriously expects the Fed to hike rates after
the meeting, investors are keenly awaiting clues to future rate
Data on Tuesday showed U.S. consumer confidence hit a
16-year low and a continued slide in housing prices, raising
doubts about the Fed's ability to raise interest rates later
this year to stem inflation. [ID:nN24338474]
Markets are still fully priced for 50 basis points worth of
increase to the 2.0 percent fed funds rate by year-end.
"A non-committal statement from the Fed would likely
generate only more dollar weakness. With ECB seemingly dead set
on raising rates at it's next meeting in July, inaction from the
Fed would create further expansion of interest rate
differentials between the euro and the buck," said Boris
Schlossberg, senior currency strategist at FXCM.
"Ironically enough a neutral stance by the Fed would not
necessarily cause dollar losses against the yen as equities
could stage a relief rally."
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