Monday January 5, 2009 - 21:14:17 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar bolstered by Obama stimulus plan, ECB outlook
FOREX-Dollar bolstered by Obama stimulus plan, ECB outlook
* Dollar hits three-week high vs euro
* Obama stimulus package provides dollar support
* Easing risk aversion boosts dollar vs yen
* Slowing inflation dents euro ahead of ECB meeting
(Recasts; adds comment, updates prices)
By Nick Olivari
NEW YORK, Jan 5 (Reuters) - The dollar posted sharp gains
against the euro and yen on Monday, buoyed by a planned U.S.
stimulus package and increased expectations of interest rate
cuts by major central banks other than the Federal Reserve.
Investors welcomed news that U.S. President-elect Barack
Obama is seeking as much as $310 billion in tax cuts as part of
a proposed stimulus package that could be worth up to $775
billion. For details, see [ID:nN04350872]
"The combination of tax cuts, infrastructure spending and
job creation under the Obama stimulus package takes out some of
the pain from the economic recession we're in," said Ron
Simpson, director of currency research at Action Economics in
"The Federal Reserve and U.S. Treasury are being pro-active
in dealing with this crisis. I think at some juncture, the U.S.
efforts would turn the economy around quicker than many of the
other countries and that should be dollar-positive," he added.
The yen, on the other hand, fell to more than three-week
lows against the dollar amid improved risk appetite, with
bargain prices and hopes for a global economic recovery this
year prompting stock market gains in Europe and Japan.
The euro, meanwhile, hit three-week lows against the
dollar, with weaker-than-expected inflation data in Italy and
Spain and tax cuts in Germany seen raising pressure on the
European Central Bank to cut interest rates further.
Analysts said the euro's rally in December was too far, too
fast given the feeble state of the euro zone economy.
In late New York trading, the euro <EUR=> weakened 2.1
percent on the day to $1.3587, after earlier touching $1.3548
-- its lowest since mid-December, according to Reuters data.
Against the yen <JPY=>, the dollar climbed to 93.56 yen,
according to Reuters data, its highest since Dec. 8. It last
traded at 93.29 yen, up 1.2 percent. The Japanese currency
surged nearly 19 percent last year against the dollar as
investors sold off risky assets financed with the yen's cheap
Sharp losses by the euro have also helped sterling recover
some of its recent losses against the euro zone currency. Last
week, sterling hit record lows against the euro and appeared to
be headed for parity.
The euro fell sharply against the pound to 92.44 pence
<EURGBP=>. It earlier hit 92.29 pence, according to Reuters
data, also the lowest since mid-December.
The euro weakened after ECB Vice President Lucas Papademos
said on Sunday that more rate cuts may be needed to shield the
euro zone economy from recession. [ID:nN04347375]
"His comments have dented some of the euro's appeal by
suggesting that lending rates could fall aggressively in the
coming months, which is a bit of an about-face from recent
remarks by other ECB officials, who had suggested a resistance
to cut rates as aggressively as the U.S.," said Omer Esiner,
senior market analyst at Ruesch International in Washington.
EURO ZONE WOES
Figures on Monday showed Italian EU-harmonized consumer
price growth slowed in December while similar Spanish data
showed inflation tumbled to a 10-year low. [nL581407]
These numbers add pressure on the ECB to cut rates further
when it meets next week to decide on monetary policy in the
currency bloc. Markets have largely priced in a half percentage
point rate cut to 2 percent.
Investors also see the probability of borrowing costs
falling more sharply to 1.75 percent ECBWATCH.
"ECB President Trichet has played down the risk of
deflation, describing the risk as just a temporary base effect,
(but) monetary conditions are currently tightening," Bank of
Tokyo-Mitsubishi wrote in a note to clients.
"Tightening conditions will force the ECB to act more
aggressively than is currently expected, prompting a renewed
drop in the euro/dollar rate," it said.
(Reporting by Nick Olivari and Gertrude Chavez-Dreyfuss;
editing by Gary Crosse)
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