FOREX-Euro softer, focuses on ECB and Trichet
Thu Feb 7, 2008 3:52am ESTBy Ian Chua
LONDON, Feb 7 (Reuters) - The euro was struggling to make any headway on Thursday ahead of the outcome of the European Central Bank's policy meeting with some investors betting the inflation-fighting central bank might soften its hawkish stance.
While markets expect no imminent changes to interest rates, the euro had been under pressure this week after surprisingly weak euro zone service sector data on Tuesday fuelled expectations the ECB might have to bring forward any rate cuts to shore up growth.
"The euro has been a little bit weak in the past couple of days and probably the market is looking for the ECB to tone down a little bit its hawkishness, but we don't think this will happen at this meeting," said Marcus Hettinger, global FX strategist at Credit Suisse.
The single European currency had also been hit by weaker equity markets this week. "Today, some European markets are in negative territory, so that is bringing a little downside for the euro," he added.
The FTSEurofirst 300 share index lost half a percent in early trading, hurt by bad news from the tech sector.
At 0825, the euro was a touch softer against the dollar at $1.4614
Against a basket of major currencies, the dollar edged up 0.1 percent to 76.225 .DXY.
In contrast to the United States, Canada and Britain, the ECB has not yet gone down the path of cutting interest rates because of price pressures in the 15 countries using the euro. In January, euro zone inflation hit a record high.
But recent signs of faltering growth in Spain, Italy and elsewhere in the bloc are expected to weigh on the ECB Governing Council at this morning's meeting. For investors, the main focus will be on what ECB's President Jean-Claude Trichet says at a news conference at 1330 GMT, following the rate decision at 1245 GMT. The ECB is widely seen holding rates steady at 4 percent.
"Our focus will be on whether Trichet concedes that the outlook for slower global growth will reduce upside CPI risks and/or if he states that the Council considered all options, including an easing, which would shift the bias toward neutral," said analysts at Calyon.
"The latter in particular would hint at a rate cut before the June move, which we currently forecast, and prompt a sell off in EUR/USD," they said in a report
Should Trichet stick to the hawkish script, the euro will likely benefit, but given expectations that the ECB will eventually have to lower rates, any boost to the currency should prove short lived, Calyon added. The Bank of England (BoE) will also be holding its policy-setting meeting on Thursday and is widely expected to cut interest rates by 25 basis points to 5.25 percent to head off a sharp consumer-led slowdown.
Sterling, which has fallen in recent sessions, slipped 0.2 percent to $1.9566
Source: http://www.reuters.com/article/usDollarRpt/idUSL0724752320080207?pageNumber=2&virtualBrandChannel=0
