Thursday July 17, 2008 - 11:01:14 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dlr on the backfoot as ECB ups ante on inflation
* Euro up 0.3 percent at $1.5874 <EUR=>
* ECB's Wellink comments a reminder on ECB's mandate
* Reserve diversification also weighs on dollar
* Financial jitters persist as more U.S. banks to report
(Changes byline, adds quotes, update prices)
By Veronica Brown
LONDON, July 17 (Reuters) - The euro edged back towards
record highs versus a broadly pressured dollar on Thursday,
aided by comments from a European Central Bank policymaker
emphasising its inflation-fighting mandate.
Earlier gains were also driven by a newspaper article which
put the spotlight back on central bank reserve diversification
out of the U.S. currency.
ECB Governing Council Member Nout Wellink said a slower
economy would not reduce inflation, adding that like in the
1970s if no action was taken, then the economy would experience
Analysts said the comments in an interview published on
Thursday were a timely reminder of the ECB's intent on monetary
policy despite increasing signs of growth slowing the euro area
"Wellink is a reminder...that if you let inflation get out
of hand it's pretty costly to bring it back under control," said
Chris Turner, head of FX strategy at ING.
"The market went quiet on ECB tightening after their last
press conference...and there's a risk over the coming months
that the case builds for further tightening from the ECB."
The dollar dipped earlier after a report in the Financial
Times highlighted the gradual shift of sovereign wealth funds in
China and the Middle East away from the dollar [ID:nSYD212005].
The dollar trimmed losses against the euro after JP Morgan
(JPM.N: Quote, Profile, Research, Stock Buzz) second quarter results came in slightly stronger than
Bank of New York Mellon (BK.N: Quote, Profile, Research, Stock Buzz), Capital One Financial Corp
(COF.N: Quote, Profile, Research, Stock Buzz), Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) are also slated to report results
By 1017 GMT, the euro was up 0.3 percent at $1.5875 <EUR=>
having hit a session high of $1.5892 after the Wellink comments.
The dollar index, which charts the greenback's performance
versus six major currencies, was down 0.2 percent at 71.885
However the dollar rose 0.1 percent to 105.19 yen, as a rise
in stock markets and a fall in the oil price CLc1 boosted risk
appetite, encouraging some investors to return to relatively
risky carry trades funded by cheap borrowing in the Japanese
SPECTRE OF INTERVENTION?
With the dollar down nearly 9 percent versus the euro so far
this year after falling more than 10 percent in both 2006 and
2007, its weakness may be starting to worry U.S. policymakers
who are struggling to tame inflation at a time when slowing
growth is preventing them from hiking interest rates.
On Wednesday, Federal Reserve chairman Ben Bernanke said
central bank currency market intervention should be done only
rarely, but that there may be conditions when it is justified.
"He raised the threat of intervention ... it's part of a
clear policy to make the market think that they are very
concerned about the U.S. dollar," said Nick Parsons, head of
markets strategy at nabCapital.
"The dollar is as underpriced today as the euro was back in
September 2000 when we last saw intervention. And the problems
that it causes for the world economy are far greater than the
problems that a weak euro caused eight years ago," he added.
Most analysts however reckon that for now intervention is
Thursday's calendar features no first tier euro zone data.
In the United States, weekly jobless claims and housing starts
for June are due.
(Additional reporting by Toni Vorobyova)
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