Tuesday May 8, 2007 - 10:19:40 GMT
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FOREX NEWS-Euro slips ahead of key c.bank rate meetings
FOREX-Euro slips ahead of key c.bank rate meetings
Tue May 8, 2007 5:57 AM ET
(Updates price, adds quotes, changes byline)
By Natsuko Waki
LONDON, May 8 (Reuters) - The euro slipped against the dollar and yen on Tuesday as investors adjusted their positions ahead of central bank announcements this week, including a Fed statement which could reinforce expectations of lower U.S. interest rates.
The Federal Reserve is expected to leave interest rates on hold at 5.25 percent while the European Central Bank is expected to signal a June hike after keeping policy steady. The Bank of England is forecast to raise the cost of borrowing to 5.5 percent, the highest level in the Group of Seven rich nations.
In relatively quiet trading, analysts said technical-inspired selling and speculation Japanese investors might repatriate yen from expected euro zone bond redemptions were behind the euro's move lower.
"It's a quiet market and (there is) position adjustment. The market is biding its time before a stronger move later this week," said Chris Turner, head of FX strategy at ING.
"People are waiting for ... the Fed statement to see whether they will acknowledge a decline in price pressures. You've got to assume the ECB is going to be relatively hawkish. There is nothing on the horizon to suggest the euro/dollar uptrend is going to turn this week."
By 0940 GMT the euro was down 0.2 percent at $1.3573 more than a cent away from its all-time peak set in April.
The dollar was down 0.2 percent at 119.85 yen . The euro was down 0.4 percent at 162.40 yen after breaking a key technical level at around 162.80.
"The euro is heavy everywhere," said Steven Pearson, chief currency strategist at HBOS Treasury Services.
The Australian dollar rose 0.5 percent to US$0.8293 as strong consumer spending data kept upward pressure on inflation and interest rates.
In their two-day meeting which ends later on Tuesday, euro zone finance ministers showed little concern about a stronger euro as the region enjoys its best growth since 2000.
The ECB is expected to hold rates at 3.75 percent on Thursday but to signal a hike for next month.
Analysts say the euro's further upside may come from labour market reform by France's president-elect Nicholas Sarkozy.
"As (the reform) is likely to enhance France's economic performance in the medium term, we see this as positive for the euro," Barclays Capital said in a note to clients.
However, it added: "While we do not expect Sarkozy to argue against the ECB's inflation objective, we expect him to discuss the value of the euro should the currency continue to appreciate from here."
During the presidential campaign, Sarkozy repeatedly called for a weaker euro, saying finance ministers should pressure the ECB into forcing it down to improve growth.
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