Thursday November 6, 2008 - 10:17:47 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro down before ECB, yen firm on risk aversion
* Euro down vs dollar ahead of anticipated ECB rate cut
* ECB, BoE expected to ease rates by 50 bps or more
* Yen broadly higher as falling shares spur risk aversion
* European shares down 3 pct, Nikkei closes down 6.5 pct
(Recasts, changes dateline prvs TOKYO)
By Tamawa Kadoya
LONDON, Nov 6 (Reuters) - The euro was lower against the
dollar and yen on Thursday ahead of a widely anticipated rate
cut by the European Central Bank, while the dollar and
low-yielding yen gained on risk aversion as shares fell.
Investors expect the ECB to cut borrowing costs by 50 basis
points or more from the current 3.75 percent.
While a 50 basis point cut is the consensus forecast
[ECB/INT], some interest rate futures indicate a cut of up to 75
basis points is already discounted. The ECB decision is due at
Markets also anticipate the Bank of England will cut
interest rates -- now at 4.5 percent -- by at least half a
percentage point, but many see the outcome as less certain with
some forecasting a cut as big as a full percentage point to prop
up a sharply deteriorating economy.
The BoE will announce its decision at 1200 GMT.
The ECB and BoE have already cut interest rates by 50 basis
points last month in a coordinated move.
Bigger rate cuts are usually negative for a currency as they
shrink its interest rate differential against other currencies,
making it a less attractive investment.
But as the market focuses on the possibility of a prolonged
economic downturn, it could put more emphasis on the potential
for a substantial cut to stimulate the economy.
"If the cuts are bold enough, it would be positive for the
euro and the pound," said Ian Stannard, senior currency
strategist at BNP Paribas.
At 0852 GMT, the euro <EUR=> was down 0.4 percent at
Sterling <GBP=> was nearly flat against the dollar at
Falls in global share prices on concerns of a prolonged
global economic downturn prompted investors to pull back from
riskier investments, benefitting the dollar .DXY and the
European shares fell roughly 3 percent in early
trade, while Tokyo's Nikkei average closed down 6.5 percent
The yen rose broadly, with the dollar dipping 0.4 percent to
97.94 yen <JPY=> and the euro dropping 0.8 percent to 126.45 yen
The dollar slipped, reversing an initial rally on Tuesday
following the announcement that Democrat Barack Obama had won
the U.S. presidential election.
"After digesting Barack Obama's success in winning the U.S.
presidency, investors have shifted their focus back to
conditions in the real economy," UBS analysts said in a research
Data on Wednesday showed the euro zone service sector
slumping to a fresh decade low, adding to the view that the ECB
may deliver a big rate cut. [ID:nL4658233]
Market players will also be closely watching comments by ECB
President Jean-Claude Trichet at a 1330 GMT news conference.
"As both weakening growth conditions and depreciating crude
oil prices keep inflation expectations in a clear downtrend, we
expect ECB President Trichet will keep a dovish rhetoric,
leaving doors open for further easing in rates," UBS said.
(Editing by Ruth Pitchford)
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