Thursday June 4, 2009 - 10:49:46 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar resumes downtrend; ECB, BoE eyed
* Dollar resumes downtrend as European equities rise
* ECB, BoE, BoC policy decisions eyed
* Swedish crown recovers from 6-week low vs euro
(Adds quotes, updates prices. changes byline)
By Jessica Mortimer
LONDON, June 4 (Reuters) - The dollar weakened on Thursday,
correcting some of its strong gains the previous session as
European equities rose, helping currencies perceived as higher
risk to recover.
Investors were focused on the string of policy decisions due
Thursday from the Bank of England, the European Central Bank and
the Bank of Canada.
European equities climbed 0.5 percent .FTEU3, rebounding
after steep losses the previous day and helping currencies such
as the euro and the higher risk Australian dollar to recover
against the U.S. dollar.
Elsewhere, the Swedish crown rebounded from earlier 6-week
lows against the euro -- prompted by concerns Latvia may devalue
its currency -- after news the IMF and European Commission will
issue simultaneous statements on the Latvian budget.
Both the ECB and the BoE are expected to keep interest rates
on hold at 1.0 and 0.5 percent respectively. The BoE decision at
1100 GMT is followed by the ECB decision at 1145 GMT and press
conference at 1230 GMT.
"Stock markets have recovered and they are very much driving
currency markets, which has meant a weaker dollar and a weaker
yen," SEB currency strategist Johan Javeus said.
"Central bank decisions are the key focus for now," he added.
Markets will be keenly eyeing details of the ECB's covered
bond purchase plan [ID:nL3669427], and whether the BoE makes any
further announcement on changes to its quantitative easing
programme, though this is expected to be unchanged for now.
At 1028 GMT the euro was up 0.1 percent on the day at
$1.4160 <EUR=>, while the dollar index fell 0.2 percent to
The euro hit $1.4337 in early trade on Wednesday, its
strongest since December, before falling back on the Asian
central bank comments. The dollar index on Tuesday fell as low
as 78.334, the lowest this year.
The Australian dollar gained 0.4 percent to $0.8034 <AUD=D4>
while sterling rose 0.4 percent to $1.6352 <GBP=D4>.
Against the yen -- which also tends to fall when stock
markets rise -- the dollar rose 0.6 percent to 96.53 yen <JPY=>
and the euro gained 0.7 percent to 136.68 yen <EURJPY=R>.
RATE DECISIONS EYED
The dollar has come under pressure in recent weeks partly
because the market is nervous about the ability of the United
States to finance its growing debt issuance. [ID:nSP412010]
As far as the major currencies are concerned, attention now
shifts to the central bank rate decisions later in the day. With
no changes to actual rates expected, policymakers' comments on
non-standard measures such as asset purchases will be the focus.
The market is waiting to see details of the ECB's previously
announced covered bond purchase plan to keep long-term rates
down, and see what it projects for economic growth and inflation
this year and next.
The BoE is seen likely to stick to its 125 billion pound
($208 billion) target for quantitative easing.
The Bank of Canada is expected to keep rates on hold at 0.25
percent but could make some mention of the Canadian dollar's
recent rise. [ID:nN02506478]
Meanwhile, the Swedish crown hit a six-week low against the
euro of 10.9832 per euro <EURSEK=> as speculation mounted that
Latvia might be forced to devalue amid increasing strains on its
banking system and economy.
The Swedish currency is highly sensitive to any trouble in
Baltic countries due to the substantial exposure of Swedish
banks to the region.
It recovered, however, on hopes the announcements by the EU
and IMF could lead to the IMF coming out with a new package. At
10.22 GMT, the euro fell 0.7 percent versus the crown to 10.8330
"This situation is worth watching and not just for its
impact on the Swedish krona. It does have the capacity to lift
risk-aversion at a time when there are already some very
tentative signs ... that risk-taking might be about to wane a
bit," said Steve Barrow, head of G10 currency strategy at
Standard Bank in a note.
(Additional reporting by Jamie McGeever; editing by Chris
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