SymbolPriceChange039200.KQ3,295.00+10.00
* Euro falls; ECB puts policy in neutral
* ECB could still disappoint investors pricing in Oct (KOSDAQ: 039200.KQ – news) cut
* Fed easing expectations could hamper dollar
(Recasts, adds details, adds comment, updates prices)
NEW YORK (Xetra: A0DKRK – news) , Sept 8 (Reuters) – The euro fell to a two-month
low against the dollar on Thursday after remarks by the head of
the European Central Bank signaled there will be no interest
rate increases in the near term as he highlighted downside
risks to the euro zone economy.
Investors had already struck a cautious tone on the euro
after ECB policymakers on Thursday left the benchmark interest
rate at 1.5 percent, as expected.
Though the ECB had been seen as likely to change tack from
its prior hawkish tone and flag a pause in the recent
tightening cycle, the news still prompted swift investor
reaction.
The ECB president, Jean-Claude Trichet, told a news
conference following the rate decision that a month ago the
bank had considered the risks to growth were balanced, but that
is not the case today. [ID:nFAT007249][ID:nFAT007245].
Trichet “is definitely signaling neutrality, but in that
couching language of maybe accommodative monetary policy, if
GDP turns negative,” said Boris Schlossberg, director of
currency research at GFT in Jersey City, New Jersey. “There is
no more tightening in the foreseeable future as the economic
data has definitely deteriorated.”
In midday trading, the euro was down 1.1 percent at
$1.39383 on electronic trading platform EBS, after
earlier falling as low as $1.3931, the lowest level since July
12.
Money markets are pricing in a chance of an rate cut by the
ECB as early as October as the European debt crisis shows no
sign of relenting and the global economic outlook deteriorates.
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Graphic on interest rate expectations
http://link.reuters.com/pej23s
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One analyst expected more from the ECB on dealing with the
euro zone debt crisis. [ID:nF9E7IB01Y].
“Downplaying the situation in the euro zone periphery
suggests they are slightly detached from the reality, which
does not instill much confidence that they have an
understanding of the gravity of the situation,” said Omer
Esiner, chief market analyst at Commonwealth Foreign Exchange
in Washington.
Greece on Thursday reported its economy shrank 7.3 percent
in the second quarter from a year ago, highlighting the
difficulties indebted countries face in trying to reduce their
deficits. [ID:nL5E7K80RJ]
The bickering and policy disagreements among the 17 member
countries in the euro zone on policies has even given rise to
concerns among some investors that the bloc may eventually
break up, traders say. Greece on Thursday ruled out quitting
the euro.
DOLLAR ALSO SEEN VULNERABLE; BOE HOLDS
Sterling turned higher against the dollar, rising back
above $1.60 after the Bank of England kept interest
rates at 0.5 percent and made no changes to its
asset-purchasing program. [ID:nAHL8KE72R] The pound was last
up 0.2 percent at $1.6014, according to Reuters data.
While expected, traders said the pound gained on
short-covering by some market players who had priced in the
chance that the central bank might initiate more economic
stimulus.
Meanwhile, any enthusiasm for more bearish bets on the euro
may be countered by expectations that Federal Reserve Chairman
Ben Bernanke, who is to speak on the U.S. economic outlook at
1:30 p.m. ET (1730 GMT), might drop clearer hints on the
likelihood of more stimulus later this month.
Any hint of more easing could hurt the dollar.
Markets, however, also are speculating that the Fed could
opt to embark on a program dubbed “Operation Twist,” selling
short maturities and using the proceeds to buy long-term debt,
thus flattening the yield curve but keeping balance sheets
unchanged.
Against the yen, the greenback was up 0.2 percent at 77.437
yen on EBS. Selling by Japanese exporters was seen
capping the pair around 77.50 yen, though wariness about
official intervention limited weakness in the dollar.
The dollar was up 1.6 percent against the Swiss franc at
0.8712 franc, after earlier hitting a 3-1/2-month high of
0.8714 franc on trading platform EBS.
The Swiss franc has been broadly under pressure since
Tuesday when the Swiss National Bank imposed a floor on the
euro/Swiss franc pair at 1.2000 francs. The euro was last at
1.21473 francs on EBS, up 0.5 percent.
(Reporting by Nick Olivari; Additional reporting by Julie
Haviv; Editing by Leslie Adler)
