Wednesday November 12, 2008 - 13:07:40 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro pares gains on weak data, stg down on BoE
* Euro/dollar pares early gains, pressured by weak data
* Shaky stocks keep risk aversion high, supporting dlr, yen
* Sterling hits 6-yr low vs dollar after grim BoE forecast
* Pound hits record low vs euro <EURGBP=> at 82.37 pence
(Adds quotes, updates prices, changes byline)
By Naomi Tajitsu
LONDON, Nov 12 (Reuters) - The euro pared gains against the
dollar on Wednesday after data underlined economic weakness,
while sterling tumbled after a grim Bank of England forecast
fuelled expectations for more UK interest rate cuts.
Sterling hit a six-year low against the dollar and a record
trough against the euro after the BoE's quarterly Inflation
Report predicted the UK economy will shrink sharply next year
and inflation may fall to just below 1 percent [ID:nBOE001620].
A tentative improvement in European share prices offered
some support to the euro, but the currency stayed on the back
foot after data showed euro zone industrial production fell more
than expected by 1.6 percent on month in September
This bolstered the view that a further fall in European
Central Bank rates, now at 3.25 percent, was inevitable
[ECB/INT] to counter the effects of a worldwide downturn.
"The production data confirms that the euro zone is in a
technical recession. It confirms that more rate cuts are coming
from the ECB," said Lena Komileva, G7 market economist at Tullet
Prebon in London.
Eonia interest rate futures indicate that markets are
pricing in another big rate cut, with ECB rates seen around 2.5
percent by next month.
By 1204 GMT, the euro <EUR=> rose 0.4 percent to $1.2570,
but hovered well below a session high of $1.2632. It hit a
two-week low of $1.2481 earlier in the day, according to Reuters
European stocks traded 0.6 percent higher, paring
gains made earlier in the day.
The euro <EURJPY=R> rose 0.3 percent to 122.66 yen but
stayed in range after hitting 121.23 yen, its weakest level
since late October, on electronic trading platform EBS earlier
in the day.
The dollar fell slightly to 97.60 yen <JPY=>.
Analysts said risk aversion would keep higher-yielding
currencies like the euro under selling pressure, supporting
lower-yielding currencies like the dollar and the yen.
"Given risks to the global economy, investors are holding
cash and holding safe-haven which means heading back into
Treasuries and the U.S. dollar," said Geoffrey Yu, currency
strategist at UBS in London.
Sterling <GBP=> dropped roughly one percent against the
dollar to $1.5204 according to Reuters data, its weakest level
since 2002, after BoE Governor Mervyn King told reporters that
the central bank was prepared to ease monetary policy even more
after a stunning 150 basis point cut to 3.25 percent last week.
The UK currency also fell around one percent against the
euro, hitting an all-time low of 82.37 pence <EURGBP=> according
to Reuters data, after the BoE's gloomiest forecast in more than
Against a basket of currencies, sterling <=GBP> hit a
"The overall message of this report is that the UK economy
is in recession and likely to stay there for the time being, and
that, without further monetary easing, inflation is likely to
undershoot the BoE's target," said Daragh Maher, deputy head of
currency strategy at Calyon in London.
Sonia interest rate futures indicate that markets have fully
priced in another 50 basis point cut by next month.
(Additional reporting by Tamawa Kadoya; Editing by Ruth
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