Tuesday, August 12, 2008

forex news

Euro Little Changed as ECB Official Cites Risk of Inflation

Aug. 11 (Bloomberg) -- The euro was little changed against the dollar after a European Central Bank policy maker said the bank remains focused on inflation and traders judged last week's 3.6 percent drop to be excessive.

ECB council member Klaus Liebscher said policy makers remain focused on the ``worrying'' level of inflation, Market News reported today, citing an interview. The Russian ruble declined to the lowest level against the dollar since February as armed clashes between Russia and Georgia in South Ossetia and Abkhazia deterred investors from holding the currency.

``Inflation remains a threat, and the ECB will keep reminding the market of that,'' said Adam Cole, the head of global currency strategy in London at RBC Capital Markets.

The euro traded at $1.4990 at 10:19 a.m. in New York, compared with $1.5005 on Aug. 8. It touched $1.4907, the lowest level since Feb. 26. The 15-nation euro dropped 0.3 percent to 164.87 yen, from 165.38 at the end of last week. It reached 163.65 yen, the weakest level since June 5. The dollar declined 0.2 percent to 109.98 yen, from 110.18.

The 14-day relative strength index of the euro versus the dollar fell to 21.82, the lowest since the European currency's 1999 debut. A relative strength index level below 30 suggests a currency's decline is extreme and a reversal may be imminent.

Russia's ruble fell as much as 1.6 percent to 24.618 per dollar, the weakest since Feb. 20, after Russia stepped up its bombing of Georgia, rejecting a proposed cease-fire agreed upon by Georgian President Mikheil Saakashvili. Against the euro, it declined 0.5 percent to 36.537.

Swiss Franc

The Swiss franc rose against most of the major currencies as concern the conflict will escalate prompted investors to seek a haven. The franc rose 0.3 percent to 1.6192 against the euro and advanced 0.3 percent to 1.0794 versus the dollar.

Liebscher said the ECB was right to raise interest rates in July and price risks haven't waned in recent weeks and months, although the decline in oil prices is a ``relief'' and ``welcome,'' Market News reported. The extent of the weakening in economic data ``is only a limited surprise,'' he was quoted as saying.

``There is of course no bias for the future, and there is no pre-commitment, but what really has to be done in the future depends on the data available,'' said Liebscher, according to Market News. ``For us it's not either-or, growth or price stability. It is price stability. We have to do at a given moment of time what is necessary.''

ECB Rate Outlook

Traders raised bets that the ECB will lift rates this year after leaving the main refinancing rate at 4.25 percent last week. The implied yield on December interest-rate futures, an indicator of interest rate expectations, increased 2 basis points, or 0.02 percentage point, from Aug. 8, to 4.95 percent.

The European single currency sank the most in almost eight years against the dollar on Aug. 8 as traders pared bets the ECB will raise interest rates as the economy slows. The weekly decline was the most since January 2005.

A government report showed French industrial production dropped 0.4 percent in June, the National Statistics Office in Paris. Economists in a Bloomberg survey had predicted an increase of 0.6 percent.

Moody's Investors Service said defaults on loans included in European commercial mortgage-backed securities rose 80 percent in the second quarter, sparking concern the financial turmoil in the region is deepening.

`Weaker Growth'

``We clearly have weaker growth outside the U.S.,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, in an interview on Bloomberg Television. ``With the rest of the world's growth momentum declining, clearly that's enough for the dollar to sustainably gain ground in relative terms.''

Negative economic news in the U.S. may not be over, according to Sophia Drossos, a strategist in New York at Morgan Stanley.

``I would not chase the dollar's strength versus the euro as the pair has moved beyond interest-rate support,'' said Drossos. ``The dollar is not out of the woods. It will take the market a while to come around to our point of view.''

Sales at U.S. retailers fell 0.1 percent in July after rising 0.1 percent in the previous month, according to the median estimate in a Bloomberg News survey. The Commerce Department will release the data on Aug. 13.

China's yuan weakened as much as 0.1 percent to 6.8663 per dollar, a six-week low. The yuan's 18 percent appreciation against the dollar over the past three years is grinding to a halt as government officials said supporting growth is as important as fighting inflation.

The People's Bank of China has kept the yuan little changed since June, after gains of 4.1 percent in the first quarter and 2.3 percent in the second. That raised speculation that currency policy will be adjusted to bolster exports as the trade surplus shrinks. Legg Mason Inc.'s Western Asset Management Co. is trimming bets on the yuan after it rose in July by the smallest amount in a year.

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