* Euro recovers from 5-week low below $1.37
* Sterling falls to 1-month low vs dollar after BoE report
* Euro recovers from 16-mth low vs pound
By Anirban Nag
LONDON, May 14 The euro steadied against the
dollar on Wednesday and rebounded from a 16-month trough against
the British pound after the Bank of England doused expectations
of monetary tightening in the near term.
The euro was also being helped by steady purchases by Asian
central banks, which have been actively intervening to curtail
the strength of their currencies. Such recycling of foreign
exchange reserves by the South Korean and Chinese central banks
has underpinned the euro despite growing rate cut expectations.
On Tuesday, the euro was hurt by a media report that the
Bundesbank was ready to back a raft of stimulus measures for the
euro zone economy if the European Central Bank cuts its own
inflation forecasts next week.
That bolstered expectations of policy easing by the ECB next
month and saw the euro drop to a two-month low against the yen
and hit a 16-month trough against the pound earlier
in the European session.
Reuters on Wednesday quoted sources as saying the ECB was
preparing a package of policy options for its June meeting,
including cuts in all its interest rates and targeted measures
aimed at boosting lending to small- and mid-sized firms.
The euro was steady against the dollar at $1.3710,
having hit a low of $1.36885 on Tuesday. It was up 0.3 percent
against sterling at 81.75 pence, rebounding from a low of 81.26
"The market is generally 'long euro', and so should find it
easy to sell - except people have been burned so many times by
thinking the euro was headed lower only to find it bouncing
back," said Marshall Gittler, head of global FX strategy at
"On the other hand, few people are willing to pick a bottom
when it looks as if this may be the real thing with regards to a
change in sentiment at the ECB."
BOE DOUSES HIKE EXPECTATIONS
Sterling fell to a one-month low against the dollar after
the Bank of England doused expectations of near-term monetary
tightening in its quarterly inflation report.
Some in the market had positioned themselves for a hawkish
message from the Bank, which would have added to expectations
that the bank could begin raising interest rates as early as
later this year.
Sterling fell to a one-month low of $1.6759 after
the report was released from around $1.6820 beforehand. It was
last trading at $1.6770, down 0.3 percent on the day.
In the report, the Bank said it remained in no rush to raise
its benchmark interest rate from a record low 0.5 percent, and
that it still saw borrowing costs rising in about a year's time.
It also noted that sterling appreciation was putting downward
pressure on inflation.
"Though (BoE chief) Mark Carney indicated 'one-off' changes
would have likely just transitory effects, he indicated that
persistent strength ... could slow the eventual tightening
cycle," said Josh O'Byrne, currency strategist at Citi.
(Editing by Kevin Liffey)