Thursday March 5, 2009 - 11:10:40 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro softer before ECB; dollar broadly stronger
* Euro slips ahead of expected ECB rate cut
* Dollar broadly stronger; 4-month high vs yen at 99.67 yen
* Euro zone Q4 GDP confirmed at -1.5 pct q/q
* Focus on details as BoE seen adopting QE
(Adds quotes, updates prices)
By Tamawa Desai
LONDON, March 5 (Reuters) - The euro softened on Thursday as
investors awaited a policy decision by the European Central
Bank, which is widely expected to cut interest rates further to
shore up the ailing euro zone economy.
The Bank of England will also meet to set monetary policy,
where as well as an expected half-point rate cut, markets will
focus on the extent of new steps to boost the monetary base, or
so-called quantitative easing.
The dollar retained its broad strength, rising against a
basket of currencies, as underlying worries about financial
institutions and a global recession persist, prompting investors
to seek refuge in a currency viewed as relatively safer.
It also rose to a fresh four-month high against the yen on
worries over a deteriorating economy and deepening political
uncertainty in Japan.
The ECB is widely expected to cut interest rates to an
all-time low of 1.5 percent from 2 percent on Thursday and slash
its 2009 and 2010 economic forecasts to reflect the rapid pace
of deterioration in the euro zone. [ID:nL4897767]
By 1014 GMT, the euro was down 0.4 percent at $1.2580
Traders are looking for hints of more rate cuts, as well as
the prospect of unconventional measures when ECB President
Jean-Claude Trichet speaks after the rate decision.
"With a 50 basis point rate cut expected, the focus will be
on whether the ECB will be more aggressive toward quantitative
easing and also contributing to help Eastern Europe," said
Geoffrey Yu, currency strategist at UBS.
ECB Governing Council members Axel Weber and Christian Noyer
said on Tuesday the central bank was considering all options to
extend its monetary toolbox further. [ID:nL3433144]
Data showed the euro zone economy contracted by 1.5 percent
in the fourth quarter of 2008, unchanged from a preliminary
estimate. It was slightly worse on a year-on-year basis, down
1.3 percent compared with an initial -1.2 percent.
The BoE is expected to cut interest rates by half a point to
a record low of 0.5 percent, although there are some views that
it may make a smaller cut or make no cut at all.
The BoE has asked permission from the UK government to
embark on quantitative easing by purchasing gilts and other
commercial assets using new money -- a measure expected to be
approved later in the day. [ID:nB398781]
Sterling was flat against the dollar at $1.4159 <GBP=> while
the euro was down 0.4 percent at 88.82 pence <EURGBP=>.
The dollar index was up 0.5 percent at 88.929, hovering near
three-year highs .DXY.
The dollar rose 0.3 percent to 99.67 <JPY=>, its highest in
four months, before settling back at 99.41.
Government data on Thursday showed Japanese firms' capital
spending tumbled 17.3 percent in October-December from the same
period a year earlier, pointing to a downward revision of gross
domestic product for the quarter next week. [ID:T343796]
"Dollar/yen continues to ratchet higher toward the 100 yen
level and should break through this mark before the end of the
week," said Daragh Maher, deputy head of global foreign exchange
research at Calyon, pointing to the economic backdrop.
The Swedish crown extended losses against the euro after one
of the country's central bankers said the currency's weakness
could be more prolonged and more rate cuts may be needed.
Deputy Governor Svante Oberg also said the crown's weakness
should be temporary, but there was a considerable risk the
economy would remain weak into next year and that the bank may
have to develop unconventional policy measures.
The euro rose to a session high of 11.4520 crowns <EURSEK=>,
up around 0.5 percent on the day, before easing back slightly to
11.4330 crowns, Reuters data showed.
(Editing by Patrick Graham)
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