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FOREX-Euro down on ECB rate cut talk; yen dips before G20
April 17, 2013 / 8:36 PM / 5 years ago

FOREX-Euro down on ECB rate cut talk; yen dips before G20

* Weidmann says ECB may cut rates if economy weakens-WSJ
    * G20 meeting seen unlikely to criticize BOJ policy
    * Canada dollar slumps after BoC cuts growth forecast

    By Steven C. Johnson
    NEW YORK, April 17 (Reuters) - The euro suffered its biggest
daily decline against the dollar in nearly a year on Wednesday,
weakened by talk of a euro zone interest rate cut, while signs
of economic malaise in Britain and Canada added to the U.S.
currency's appeal.
    The yen also slipped against the dollar, with officials at a
weekend Group of 20 meeting not expected to scold Japan for a
monetary policy that has led to a sharp slide in the currency.
    A bigger focus for currency traders on Wednesday was
monetary policy in Europe after Jens Weidmann, a member of the
European Central Bank's governing council, was quoted by the
Wall Street Journal as saying the central bank could cut rates
further if conditions in the euro zone worsen. 
    The euro fell 1.1 percent to $1.3026 after hitting a
seven-week high overnight and was on track for its largest
one-day slide since June. It fell 0.6 percent to 127.73 yen
, moving further away from a three-year high above 131.
    Support for the euro lies around $1.3020, traders said,
while a break could spark a decline toward $1.30 and $1.29.
    Lower rates in Europe and tepid growth in other developed
economies enhance the appeal of the dollar, especially now that
markets think the Federal Resreve may tighten its ultra-loose
monetary policy by slowing asset purchases later this year.
    "When you dig a little deeper and take a step back, this has
all the hallmarks of a dollar rally because it is being directed
by interest rate differentials," said Paresh Upadhyaya, head of
currency strategy at Pioneer Investments in Boston. "That
Weidmann admitted they are looking at a rate cut emphasizes it."
    So did data showing weak wage growth and higher unemployment
in Britain, which added to concerns about fragile UK growth and
pushed sterling down 0.8 percent to $1.5238 
    The Canadian dollar also tumbled after the Bank of Canada
cut its growth forecast and left interest rates unchanged. The
U.S. currency rose 0.6 percent to C$1.0261.
    The ECB decided to leave interest rates on hold this month,
but President Mario Draghi said the bank would "monitor very
closely" all data and stands "ready to act" to help the euro
zone climb out of recession.
    Euro zone inflation eased in March, while investor sentiment
in Germany, the euro zone's largest economy, soured in April.
    Ashraf Laidi, chief global strategist at City Index Ltd in
London, said the sharp market reaction highlights "that the
euro's biggest risk factor remains that of a rate cut."
    U.S. monetary policy is expected to remain accommodative for
some time to come, and near-zero interest rates are unlikely to
rise any time soon. But a tapering of asset purchases would
likely nudge Treasury yields higher and reassure investors about
growing strength in the U.S. economy.
    Recent U.S. economic data, however, has been disappointing,
suggesting to some that the Fed may not be as eager to tighten
policy now as it was at its last policy meeting. Data showed
employers hired at the slowest pace in nine months in March.
    That, along with speculators excessive bets against the yen,
may have helped slow the Japanese currency's decline. The dollar
rose 0.5 percent to 98.04 yen but remained well below the
four-year high of 99.94 yen reached last week.
    Upadhyaya said signs that the Bank of Japan's massive
moentary easing would chase money out of the yen and into
higher-yielding asset abroad have so far been hard to find.
    "That may have frustrated yen bears who got pulled in at
pretty poor levels" when the yen was nearing 100 per dollar, he
said. "But that's really just technical positioning, and I am
still negative yen in the medium term."
    Matthew Lifson, senior trader and analyst at Cambridge
Mercantile Group in Princeton, New Jersey, said most traders
expect the dollar to hit 105 yen by midsummer.
    Upadhyaya said it would probably take confirmation that the
Fed will indeed taper its own asset purchases would accelerate
that move. "For dollar/yen to break 100 on a sustainable basis,
the Fed has to be part of the equation."

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