Black Friday is Now! Don’t miss out on up to 60% OFF InvestingProCLAIM SALE

FOREX-Euro slips vs dollar, yen ahead of ECB rate decision

Published 03/05/2009, 02:01 AM
Updated 03/05/2009, 02:16 AM
MFG
-

* Euro slips ahead of expected ECB rate cut

* BoE looks set to cut rates to near zero, hurting sterling

* Dollar rises to 4-month high vs yen

* Australian dollar on defensive after data

By Rika Otsuka

TOKYO, March 5 (Reuters) - The euro slipped against the dollar and the yen on Thursday as investors braced for the European Central Bank to cut interest rates later in the day to help the faltering euro zone economy.

Sterling also fell against dollar as the Bank of England looked set to lower rates to close to zero and announce it would start raising money supply to drag Britain out of recession.

The dollar rose to a fresh four-month high against the yen as investors were concerned about a deteriorating economy and deepening political uncertainty in Japan.

The ECB is 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.

Market players said a 50 basis point cut was mostly priced in and they were looking for hints on whether more cuts were likely.

"The focus is on how far the ECB revises down its forecasts for economic growth and, in particular, inflation. A significant cut in its inflation outlook could be taken by the market as a sign that rates will be taken down further," said Takahide Nagasaki, chief forex strategist at Daiwa Securities SMBC.

"This meeting could alter perceptions towards the ECB and weigh on the euro, because until recently the bank was not expected to go as far as its counterparts in Britain and Canada."

The BoE is expected to cut interest rates by half a percentage point to a record low of 0.5 percent later in the day.

On Tuesday the Bank of Canada cut its benchmark interest rate to a record low 0.5 percent.

Some central banks are running out of room for easing and are considering non-conventional measures like quantitative easing.

Quantitative easing, employed by Japan from 2001 to 2006, refers to flooding the banking system with cash to boost lending after traditional tools to help the economy, such as rate targets, have been exhausted.

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.

There is also hope ECB President Jean-Claude Trichet will use a post-meeting news conference to hint the central bank is closer to deciding on unconventional ways to boost the euro zone once it runs out of ammunition with interest rates, economists said.

The European single currency fell 0.6 percent from late U.S. trade to $1.2588.

The annual meeting of China's legislature is being watched after global markets soared on Wednesday on speculation it would add to a stimulus plan unveiled in November.

Traders said equity-supportive news from China could further improve risk appetite. Premier Wen Jiabao, speaking on Thursday, did not announce an increase in the stimulus plan but analysts say spending could rise if needed.

The euro slipped 0.4 percent against the yen to 125.00 yen. Sterling fell 0.4 percent to $1.4140.

KEY YEN LEVEL IN SIGHT

The dollar rose 0.3 percent to 99.54, its highest in four months, before settling back at 99.41.

"The dollar is likely to climb above the key 100 yen level," said Shuichi Kanehira, senior vice president of the forex division at Mizuho Corporate Bank. "But its rise above that level may only be temporary as many players are expected to book profits on the dollar's recent rally."

The yen's safe haven status has diminished as the global downturn has taken a toll on Japan's export-dependent economy, which shrank a record 3.3 percent in the fourth quarter.

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.

The Australian dollar fell 0.9 percent to $0.6433, giving up some of the previous day's gains, after poor housing and trade data bolstered arguments the Reserve Bank of Australia will need to resume cutting interest rates in April. (Additional reporting by Shinichi Saoshiro; Editing by Edwina Gibbs)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.