Thursday September 4, 2008 - 20:15:40 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar rallies vs euro, trades at year's high
* Dollar rallies to its highest vs euro this year
* ECB downgrades growth view, stoking rate-cut speculation
* Euro zone's Juncker: Euro still effectively overvalued
(Adds comments, updates prices, changes byline)
By Vivianne Rodrigues
NEW YORK, Sept 4 (Reuters) - The U.S. dollar rallied on
Thursday to its highest against the euro this year after the
European Central Bank cut its growth outlook for the 15-nation
region, boosting the likelihood of interest rate cuts.
The euro deepened losses after the chairman of euro zone
finance ministers, Jean-Claude Juncker, said the zone's single
currency was still effectively overvalued despite its recent
fall. For details see [ID:nL4400641] and [ID:nBRM000070].
Euro zone economic uncertainty was "particularly high," ECB
president Jean-Claude Trichet said after the bank left its
benchmark lending rate at 4.25 percent on Thursday. But he
cautioned inflation remains high and risks are to the upside.
"Trichet maintained his unambiguously hawkish language on
inflation, but markets are largely focusing on the ECB's growth
downgrades for the euro zone," said Ashraf Laidi, chief FX
strategist at CMC Markets U.S. in New York. "This bolsters the
possibility of an eventual ECB easing in the second half of
The ECB staff now forecasts growth in the euro zone for
2008 at between 1.1 and 1.7 percent. For 2009 it forecasts
growth between 0.6 percent and 1.8 percent.
Three months ago, the forecast was for growth of about 1.8
percent this year and 1.5 percent in 2009. [ID:nL4276616].
In late afternoon trading in New York, the euro <EUR=>
tumbled more than 1 percent on the day to trade at $1.4332,
after falling as low as $1.4321, its lowest since December
2007, according to Reuters data.
The euro also fell against the yen to its lowest since
March and last traded at 153.63 yen <EURJPY=>, down 2.1 percent
on the day.
The ICE Futures U.S. Dollar index .DXY, which tracks the
value of the greenback against a basket of six major
currencies, rose 0.7 percent to 78.624.
Adding to dollar gains versus the euro were comments by the
International Monetary Fund that the euro was on the strong
side despite some weakening and the greenback was now closer to
its medium-term equilibrium level. [ID:nN04286302].
The dollar, however, fell 1.1 percent against the yen to
trade at 107.12 <JPY=>, hurt by sharp losses on Wall Street
"The focus remains on risk and risk-aversion levels remain
high," said Ron Simpson, director of FX currency research at
Action Economics in Tampa, Florida. "U.S. asset prices are on
the decline and dollar/yen is reacting to the risk backdrop."
U.S. PAYROLLS AHEAD
On the U.S. economic front, the dollar had limited reaction
to reports showing private-sector job contraction of 33,000
last month, roughly in line with forecasts, while the number of
people filing for jobless benefits rose by 15,000 in the latest
week. [ID:nN03319921] [ID:nN03319921].
A separate report showed the U.S. service sector expanded
slightly more than expected in August. [ID:nN04520521].
Investors will have a better idea of how the U.S. labor
market is weathering the economic slowdown on Friday when the
Labor Department releases its August nonfarm payrolls report.
"The renewed decline in August ADP suggests deterioration
in August payrolls following the smaller-than-expected loss of
76,000 private jobs in July," Laidi said.
Sterling <GBP=> fell 0.7 percent to $1.7693, surrendering
early gains following the Bank of England's decision to leave
interest rates unchanged at 5.0 percent. The euro was last down
0.7 percent at 81.07 pence <EURGBP=>.
(Additional reporting by Wanfeng Zhou and Nick Olivari;
Editing by James Dalgleish)
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