Tuesday October 7, 2008 - 08:49:01 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro recovers, c.banks eyed after RBA rate cut
* Euro recovers, sterling hits 2-1/2-year low
* RBA rate cut stokes speculation of cuts by other c.banks
* Pound stung by reports of RBS emergency funding
By Naomi Tajitsu
LONDON, Oct 7 (Reuters) - The euro rose on Tuesday on
growing speculation that some central banks may follow a
surprisingly big interest rate cut by the Reserve Bank of
Australia and lower their own rates to stem economic
Sterling hit a 2-1/2-year low after talk that the Royal Bank
of Scotland was seeking government funding raised concerns about
troubles in the UK banking sector.
The yen fell after the RBA's stunning rate cut decision, but
investors remained wary of taking on risky trades that involve
selling the yen for higher-yielding currencies. Markets brushed
off the Bank of Japan's decision to hold interest rates at 0.5
The RBA's 1 percentage point rate cut ultimately boosted the
Australian dollar and ramped up expectations that other central
banks may also lower rates as the global banking sector screams
for help to deal with the credit crisis.
European Union finance ministers were meeting in Luxembourg
on Tuesday to hammer out ways to alleviate market turmoil,
instil confidence in the banking system and ensure that savers
do not lose money on their deposits [nPEK327881].
The meeting comes ahead of a gathering of finance ministers
from the Group of Seven industrialised countries in Washington
Analysts said the RBA's move -- which trumped expectations
for a 50 basis point cut -- had raised the possibility of
monetary loosening by other central banks, particularly the Bank
of England, which holds a policy meeting this week.
"The focus is on the RBA and what it has done for rate
expectations elsewhere," said Adam Cole, global head of currency
strategy at RBC. "The risk of larger moves by central banks has
The euro <EUR=> was up 0.5 percent to $1.3559 by 0813 GMT,
pulling away from a 14-month low of $1.3441 hit on Reuters data
on Tuesday, when escalating worries about the health of European
banks had pummelled the single currency.
Sterling <GBP=> fell as low as $1.7322, its weakest since
April 2006, after Royal Bank of Scotland shares (RBS.L: Quote, Profile, Research, Stock Buzz) tumbled
30 percent on reports of talks for government funding,
underlining turmoil in the financial sector [nL72038].
FOCUS ON BANKS, C.BANKS
The BoE is expected to cut rates by 25 basis points from 5.0
percent on Thursday, according to a Reuters poll last week. But
some in the market see a possibility of a 50 basis point cut,
with some analysts arguing that the banking crisis and a
deteriorating economy should take the front seat, rather than
Currencies were initially boosted by an early rise in
European shares , but trimmed gains after equities fell
into negative territory.
The Australian dollar <AUD=> was unchanged at $0.7200, after
intially diving to a four-year low under $0.7000 immediately
after the RBA announced its rate cut [nSP375711].
The yen stumbled across the board, boosting the dollar
<JPY=> a touch at 102.00 yen, off a six-month low of 100.21
touched on Monday.
The Japanese currency slipped against other currencies,
pushing the euro up around 1 percent <EURJPY=>, while the
Australian dollar was up roughly 1 percent.
Analysts said that the RBA's decision may have increased the
possibility of a hefty BoE rate cut, while adding that the
chances of an emergency cut by the European Central Bank were
low, at least for now.
"Policymakers ... particularly in Europe tend not to rush
into things and hopes of some coordinated rate cutting either
ahead of or following this weekend's G7 meeting may prove
misplaced," analysts at Calyon said in a research note.
Analysts said that markets were awaiting a speech by ECB
President Jean-Claude Trichet later in the day to see if he will
offer any clues into the central bank's rate outlook, adding
that any suggestion that a rate cut may come soon could boost
"Whilst Trichet's more dovish stance following last week's
ECB meeting prompted a sell off of the euro, the reaction to the
Australian decision indicates that if he does hint at possible
rate cuts the EUR should rally," they said.
(Editing by David Stamp) ((email@example.com; Tel:
+44207 542 5830, Reuters
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