Thursday February 5, 2009 - 11:10:14 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro gains vs dlr; trade nervous as ECB, BoE eyed
* Euro, stg up vs dollar; trade nervous ahead of ECB, BoE
* ECB seen keeping rates at 2 pct but hinting at March cut
* BoE expected to cut rates by 50 bps to 1 pct
* Eastern Europe woes leave euro vulnerable; US data eyed
(Adds quotes, updates prices)
By Jessica Mortimer
LONDON, Feb 5 (Reuters) - The euro edged up against the
dollar in nervous trade on Thursday as investors stayed
sidelined ahead of the European Central Bank's interest rate
Market players were also wary ahead of an expected interest
rate cut by the Bank of England, which limited gains for
sterling after Halifax reported an unexpected 1.9 percent jump
in UK house prices in January [ID:nL5710857].
The ECB is widely expected to leave rates on hold at 2.00
percent, before cutting borrowing costs in March [ECB/INT].
The central bank's president, Jean-Claude Trichet, has said
the next important meeting will be in March, leaving little
doubt that rates will stay put this time, but investors will be
looking for clues as to the size of the next move.
The ECB will announce the rate decision at 1245 GMT and
Trichet's news conference will follow at 1330 GMT.
Prior to that, the BoE is forecast to cut interest rates by
50 basis points to a historic low of 1.00 percent, but some
uncertainty surrounds the decision, with some analysts seeing a
chance of either a bigger or a smaller move [BOE/INT].
"The market is in limbo ahead of the rate decisions,"
IDEAglobal senior strategist Maurice Pomery said.
"There has been a lot of position squaring and people are
very skittish," he added.
At 1025 GMT, the euro rose 0.3 percent against the dollar
<EUR=> to $1.2873, while the pound rose 0.6 percent to $1.4532
The yen fell despite lower European shares, with traders and
analysts attributing the moves to positioning ahead of the rate
decisions. The euro was up 0.7 percent at 115.54 yen <EURJPY=R>
and the dollar rose 0.3 percent to 89.74 yen <JPY=>.
European shares .FTEU3 fell 1.0 percent after Deutsche
Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) posted a large loss. The yen usually benefits
when shares fall and risk aversion rises, stayed steady.
"'Risk trades' appear to be sidelined today with most of the
yen crosses close to unchanged overnight when compared to
yesterday's closing levels," Bank of America analyst David
Powell said in a note to clients.
The euro fell sharply on Wednesday after Fitch downgraded
Russia's sovereign ratings, sparking fears that problems in
central and eastern European economies will hit western European
banks and dampen euro zone trade.
The single currency was also hurt by Kazakhstan central
bank's decision to devalue its currency, and analysts say it
remains vulnerable to any further negative news out of the
"The euro has massive problems given the region's
association with eastern European emerging markets as there are
big Italian and German banks with large exposure there,"
IDEAglobal's Pomery said.
Many in the market also feel that the ECB leaving rates on
hold is negative for the euro because the central bank is not
being proactive enough in acting to stave off a potentially deep
recession in the region.
Close attention will therefore be paid to Trichet's
explanation for the decision and any clues on the size and speed
of future cuts.
With the BoE, market players will be looking for hints on
whether UK rates have further to fall and on whether the central
bank will resort to other measures, including quantitative
easing, analysts said.
Investors are also wary ahead of key U.S. non-farm payrolls
data on Friday, which are expected to show ongoing deterioration
in the labour market of the world's largest economy.
Ahead of this, market participants will be eyeing Thursday's
weekly jobless claims figures at 1330 GMT, followed by durable
(Reporting by Jessica Mortimer; Editing by Andy Bruce)
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