Wednesday April 18, 2007 - 10:14:34 GMT
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FOREX NEWS-Dlr at 26 yr low vs pound, nears record euro trough
FOREX-Dlr at 26 yr low vs pound, nears record euro trough
Wed Apr 18, 2007 6:05am ET27
(Changes byline, adds quotes, updates prices
By Simon Falush
LONDON, April 18 (Reuters) - The dollar hit a 26-year low against sterling and neared an all-time trough versus the euro on Wednesday as expectations of U.S. rate cuts contrasted with prospects for more monetary tightening in other countries.
The dollar was down across the board, hitting a 22-year low versus the New Zealand dollar on Wednesday and holding near Tuesday's 17-year low against the Australian dollar.
The fall in the dollar was exacerbated by below-forecast U.S. core consumer prices for March released on Tuesday.
The U.S. data contrasted sharply with a jump in UK consumer prices that stoked expectations for a rate hike, driving sterling above $2 for the first time since 1992 when Britain was forced to exit the Exchange Rate Mechanism, and then higher still to levels last seen in 1981.
"Growth currencies are doing well against the dollar and one currency which is clearly going into that camp is sterling. Sterling benefits from three things -- growth, rising inflation expectations and psychological levels being taken out," said Benedikt Germanier, currency strategist at UBS in Zurich.
The euro is also closing in on historic highs versus the dollar, rising above $1.3600 for the first time in two years and coming within 60 ticks of record peaks set in December 2004.
"I think we will see the euro moving beyond $1.37, its all time high," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.
"Rate differentials between the dollar and the euro on a longer and shorter term basis are continuing to favour a stronger euro." he added.
The euro rose to $1.3616 by 0940 GMT, up around 0.2 percent on the day and approaching record peaks around $1.3670 .
POUND IN THE SPOTLIGHT
Sterling rose as high as $2.0133 , its strongest since June 1981, on expectations the Bank of England will raise interest rates by at least 25 basis points to 5.5 percent in May -- which would top the U.S. federal funds rate.
The pound got a further boost on Wednesday with the publication of above forecast UK average earnings data.
The kiwi rose to US$0.7492 , the highest level since it was allowed to float freely against the dollar in 1985 after slightly softer-than-expected inflation did nothing to change expectations that New Zealand's rates -- already the highest in the industrialised world at 7.5 percent -- will rise further.
But the yen, which has suffered along with the dollar due to its low-yielding status, pulled back from a record low against the euro as investors took profits on short positions.
The dollar fell a quarter percent to 118.65 yen .
The euro was steady at 161.52 yen pulling back from a record high above 162.40 yen hit earlier this week.
The U.S. dollar hit a fresh 2-year low against a basket of currencies at 81.57 <=USD>.
LOOKING FOR FED CUTS
Investors continued to shift funds to the euro after the European Central Bank kept its benchmark interest rate unchanged at 3.75 percent last week, but suggested it was likely to raise rates in June or beyond to stem higher inflation.
In contrast, most economists expect the Fed to cut its benchmark rates some time this year, even though the U.S. central bank repeated its main concern remains price pressure.
Wednesday is a relatively quiet data day, with the focus on speeches by ECB president Jean-Claude Trichet, ECB Governing Council member Axel Weber and U.S. Treasury Secretary Henry Paulson.
Â© Reuters 2007. All Rights Reserved
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