FOREX-Euro rises on strong German GDP, gains trimmed

Reuters: [2008-05-15 13:31:00]

(Changes byline, updates prices, adds quotes)

By Simon Falush

LONDON, May 15 (Reuters) - The euro strengthened on Thursday after Germany reported its strongest quarterly growth in 12 years but gains were muted as investors focused on likely slower growth ahead.

German gross domestic product expanded by 1.5 percent quarter-on-quarter in January-March, far exceeding forecasts and highlighting how much Germany has been buttressing the overall euro zone economy [nL15339192].

Along with a stronger-than-expected reading of French GDP growth, this helped the overall euro zone GDP figure for May increase by a stronger-than-expected 0.7 percent for the quarter [nL15156909].

However, the euro pared gains as some investors had expected an even stronger euro zone figure after the German gains came in so high.

"The German number really knocked the ball out of the park and given the sheer scale of the increase it's surprising there was not a bigger kick for the overall euro zone number," said Jeremy Stretch, strategist at Rabobank.

At the same time, figures showed that annual inflation in the euro zone was 3.3 percent in April, below March's record 3.6 percent, suggesting the possibility that inflation pressures may have peaked.

While the regional economy remains on firm ground for now, the Munich-based Ifo research institute's euro region economic climate index worsened to a five-year low in the second quarter, suggesting a slowing economy in coming months[ID:nBEB002089].

"The outlook from here is fairly negative and the lagged effects of slowing growth in the U.S. and the credit crunch are likely to be felt in the euro zone," said Jeremy Stretch, strategist at Rabobank.

The euro climbed as high as $1.5547 <EUR=> after the German data but pared gains to trade up 0.1 percent at $1.5495 by 1111 GMT as investors proved underwhelmed by the euro zone-wide data.

Sterling pulled away from a near three-month low against the dollar after UK Prime Minister Gordon Brown said that he hoped the Bank of England could cut interest rates, a move seen helping the ailing UK economy. (For details please double click on [nL15491507]).

Sterling was steady at $1.9453 <GBP=>, recovering from the day's low and off the low of $1.9363 since late February hit on Wednesday.

The dollar was little changed at 104.95 yen <JPY=>.

ECB ON HOLD

Growth in the euro zone through April has vindicated the European Central Bank's decision to hold interest rates at 4 percent despite nagging inflation risks, analysts said.

"A lot of the people were concerned that the ECB may be worried about an inflation problem that was not as bad as expected. But to be quite honest, the ECB has been right and the market has been wrong," said Steve Barrow, chief currency strategist at Bear Stearns.

The euro has retreated from a record high against the dollar hit last month on expectations that a slowdown in regional growth would require the ECB to cut rates some time this year.

Analysts were cautious in getting too optimistic about Thursday's figures, and some see much harder times ahead for the euro zone as the region's economy feels the pinch of an ongoing global slowdown.

"Looking ahead, we think that no euro-area country will be immune to the downturn," said analysts at Lehman Brothers in a research note. "We thus expect signs of a substantial cooling of activity growth to come through in the Q2 GDP data."

The dollar has been supported by market expectations for the Federal Reserve to pause lowering U.S. interest rates and to start raising them later in the year as the central bank focuses on the threat from inflationary pressures. <FEDWATCH>

San Francisco Fed President Janet Yellen said on Wednesday that rates had "come way down" in recent months, and with inflation looming the central bank's key lending rate had probably been cut enough for now despite risks to growth [ID:nN14515957].

Investors will eye U.S. jobless and manufacturing data at 1230 GMT for further clues on the prospects for monetary policy. (Additional reporting by Naomi Tajitsu) (Editing by David Christian-Edwards)

((simon.falush@reuters.com. +44 20 7542 7681) Reuters Messaging: simon.falush.reuters.com@reuters.net))

Keywords: MARKETS FOREX

 Currency bid prices at 1105 GMT.  All data taken from Reuters 
with percent change calculated from the daily U.S. 
close at 2130 GMT. 
 
                       Last     US Close  % Chg   YTD %   2007 
                                14 May.                   Close 
                       ----------------------------------------- 
 Euro/dlr   <EUR=>     1.5497   1.5475   +0.14    +6.22   1.4589 
 Dlr/yen    <JPY=>     104.96   105.04   -0.08    -5.72   111.33 
 Euro/yen   <EURJPY=>  162.66   162.58   +0.05    +0.08   162.53 
 Dlr/swiss  <CHF=>     1.0537   1.0543   -0.06    -7.04   1.1335 
 Stg/dlr    <GBP=>     1.9436   1.9465   -0.15    -2.07   1.9847 
 Dlr/cad    <CAD=>     1.0018   1.0029   -0.11    +0.54   0.9964 
 Aus/dlr    <AUD=>     0.9356   0.9339   +0.18    +6.84   0.8757 
 NZD/Dlr    <NZD=>     0.7556   0.7606   -0.66    -1.43   0.7666 
 Euro/swiss <EURCHF=>  1.6331   1.6319   +0.07    -1.26   1.6539 
 Euro/stg   <EURGBP=>  0.7972   0.7948   +0.30    +8.48   0.7349 
 Euro/sek   <EURSEK=>  9.3295   9.3085   +0.23    -1.07   9.4304 
 Dlr/Nok    <NOK=>     5.0784   5.0765   +0.04    -6.56   5.4347 
  
 Latest forex developments <FXNEWS>    
 All forex news ... [FRX]  Debt...[DBT] Indicators...[ECI] 
 Currency reports.. [USD/] [DLR/BLOC] 
                    [GBP/] [AUD/] [NZD/] [CAD/] 
 All spots  <FX=> 
 Tokyo spots <AFX=> 
 Europe spots <EFX=> 
 Volatilities <FXVOL> 
 Tokyo Forex market info from BOJ <TKYFX> 
 World central bank news [CEN] 
 Economic Forecasts...<ECON>   Official rates...[INT/RATE] 
 Forex Diary.......[MI/DIARY]   Top events........[M/DIARY] 
 Diaries...........[DIARY] Diaries Index........[IND/DIARY] 
 Press Digests....[PRESS]  Polls on G7 economies..[SURVEY/] 
 
  

FOREX-Euro climbs, strong German GDP supports

Reuters: [2008-05-15 10:23:00]

(Changes dateline, byline, releads, updates prices, adds quote)

By Naomi Tajitsu

LONDON, May 15 (Reuters) - The euro jumped on Thursday after a surge in German economic growth to its fastest pace in 12 years and strong French GDP data, suggesting euro zone economies have held up well in the face of a global slowdown.

Sterling pulled away from a near three-month low against the dollar after UK Prime Minister Gordon Brown said that he hoped the Bank of England could cut interest rates, a move seen helping the ailing UK economy. (For details please double click on [nL15491507]).

German GDP expanded 1.5 percent quarter-on-quarter in the first three months of the year, far exceeding forecasts of a 0.7 percent reading and highlighting the extent to which Germany has been buttressing the overall euro zone economy [nL15339192].

Along with a stronger-than-expected reading of French GDP growth, analysts said Wednesday's figures were helping the euro to recover after it fell to a two-month low last week.

"The figures suggest that things are better in the euro zone than expected, and this has pushed the euro back up into the driver's seat," said Steve Barrow, chief currency strategist at Bear Stearns.

Given the strong national figures, market participants said that a reading of first quarter euro zone growth due at 0900 GMT was likely to be strong, which could further support the common European currency.

The flash estimate is expected to show that growth picked up to 0.5 percent quarter-on quarter from 0.4 percent in the previous three months, while the annual rate of growth is seen slowing to 1.9 percent from 2.2 percent.

The euro climbed 0.4 percent to $1.5535 <EUR=>, pulling further away from a two-month low of $1.5284 last week.

Sterling traded 0.1 percent higher at $1.9490 <GBP=>, recovering from the day's low and pushing back from $1.9363 hit on Wednesday for the first time since late February.

The euro's gains weighed on the dollar, pushing it down 0.3 percent to 104.70 yen <JPY=>.

ECB ON HOLD

Analysts said that Thursday's strong growth data suggested that the European Central Bank has been correct in holding off from cutting interest rates due to persistent inflation risks, as economies in the region remain firm.

The euro has retreated from a record high against the dollar hit last month on expectations that a slowdown in regional growth would require the ECB to cut rates some time this year.

"(The data) supports what the ECB has been doing with respect to policy," Bear Stearns' Barrow said. "A lot of the people were concerned that the ECB may be worried about an inflation problem that was not as bad as expected. But to be quite honest, the ECB has been right and the market has been wrong."

The dollar has been supported by market expectations for the Federal Reserve to pause lowering U.S. interest rates and to start raising them later in the year as the central bank focuses on the threat from inflationary pressures. <FEDWATCH>

San Francisco Fed President Janet Yellen said on Wednesday that rates have "come way down" in recent months, and with inflation looming the central bank's key lending rate has probably been cut enough for now, despite risks to growth. [ID:nN14515957]

(Editing by David Stamp)

((naomi.tajitsu@reuters.com; Tel: +44207 542 5830, Reuters Messaging: naomi.tajitsu.reuters.com@reuters.net))

FOREX-Euro boosted vs dlr after German GDP data

Reuters: [2008-05-15 08:53:00]

LONDON, May 15 (Reuters) - The euro got a shot in the arm on Thursday after German GDP growth leapt to a 12-year high, bucking a trend of poor economic data, and placing focus on growth data for the whole common currency zone due at 0900 GMT.

German gross domestic product (GDP) expanded 1.5 percent quarter-on-quarter in the first three months of 2008, the strongest growth since 1996, the Federal Statistics Office said.

The increase, which was adjusted for seasonal, calendar and price effects, followed expansion of 0.3 percent in the final quarter of 2007, and far outstripped analysts' expectations.

Analysts said a further upside surprise from the euro zone data later would help to support the euro further, but the lift was likely to be temporary when set against a run of recent poor economic data.

"Euro zone GDP will likely be a bit stronger than people had expected, but in the end the GDP numbers are lagging. Markets are forward-looking these days and investors will still look at what the ECB will do in the future due to inflation concerns," a Europe-based trader said. "We will see a bit of a boost in the euro, but I think it will be short-lived."

By 0644 GMT, the euro was up 0.3 percent on the day at $1.5526 <EUR=>, but the common currency is still down some 3 percent from record highs struck last month above $1.60.

(Reporting by Veronica Brown and Naomi Tajitsu; Editing by David Stamp)

((RM:veronica.brown.reuters.com@reuters.net; Tel: +44 207 542 6745))

Keywords: MARKETS FOREX

FOREX-Dollar gains before US CPI, sterling slumps

Reuters: [2008-05-14 13:18:00]

(Changes byline, adds quotes, updates prices)

By Naomi Tajitsu

LONDON, May 14 (Reuters) - The dollar rose broadly on Wednesday, building on gains made after robust U.S. retail data as more investors adopted the view that the Federal Reserve may be done with cutting interest rates, at least for now.

Sterling slumped to a near three-month low against the dollar after the Bank of England in its quarterly inflation report said that UK prices would shoot up this year, which many believe may delay interest rate cuts. Click on [ID:nBOE001421]

Inflation pressures remained a main theme in the market, and investors awaited the April U.S. consumer price index at 1230 GMT to glean more insight into whether the Fed will take a breather from aggressive rate cuts while it gauges the impact of past cuts on the broader economy.

U.S. interest rate futures showed the market has begun to price in the possibility that the Fed may even raise borrowing costs at the end of the year <FEDWATCH>, pushing Treasury yields higher and boosting the appeal of U.S. debt.

"An increase in U.S. bond yields reflects two things: a market perception that the Fed is on hold for now and the feeling that previous rate reductions together with current fiscal stimulus ... will help the U.S. economy," said Neil MacKinnon, chief economist at London-based hedge fund ECU Group.

"Both factors will help support the dollar."

The 10-year Treasury yield jumped near 4 percent, its highest since the start of the year <US10YT=RR>.

The dollar was also bolstered after data on Tuesday showed U.S. retail sales, excluding those in the hard-pressed auto sector, rose 0.5 percent in April, more than double economists' forecasts, and suggesting that consumer demand was improving.

By 1054 GMT, the dollar was up 0.4 percent at 105.18 yen <JPY=>, edging closer to a two-month high of 105.69 yen touched at the start of the month.

The euro fell 0.2 percent to session lows around $1.5425 <EUR=>, with traders citing strong dollar buying versus Asian currencies as a factor dragging the single currency down.

The euro is now down nearly 4 percent from record highs hit last month at $1.6018, according to Reuters data.

Against a basket of six major currencies, the dollar was up 0.2 percent at 73.466 <.DXY>.

Sterling stumbled to $1.9366 <GBP=>, its weakest since late February and approaching its lowest level of the year around $1.9335.

The UK currency was pressured on concerns that ongoing signs that British inflation continues to heat up will have a negative impact on the broader economy, while keeping the central bank wary of cutting rates, which often promotes growth.

BoE Governor Mervyn King on Wednesday said that he likely would soon be forced to write several letters to the government to explain why inflation was more than a point above the central bank's 2 percent target -- as required by the BoE's remit.

The BoE has cut rates by 75 basis points since December, to 5 percent, and some in the market have cast doubt on whether a cut in June will be possible given a surge in consumer prices.

FED TALK

The greenback, which has rallied on speculation the Fed is done with cutting borrowing costs after slashing by 325 basis points since September, also garnered support from Fed comments emphasising inflation concerns.

Cleveland Fed President Sandra Pianalto called inflation "a key risk", while Dallas Fed President Richard Fisher said it was unclear whether a slowing U.S. economy would be enough to alleviate cost pressures. [ID:nN13441127]

"From the comments we've seen from most of the Fed officials, it feels like they want to indicate that we're at or very close to the bottom of where Fed funds need to go," Calyon currency strategist Daragh Maher said.

Economists in a Reuters survey expect a median 0.3 percent gain in the CPI and an annual rise of 2.4 percent in core CPI excluding food and energy items. (Additional reporting by Veronica Brown; editing by Stephen Nisbet) ((naomi.tajitsu@reuters.com; Tel: +44207 542 5830, Reuters Messaging: naomi.tajitsu.reuters.com@reuters.net))

Keywords: MARKETS FOREX

FOREX-Dollar firms as inflation moves into focus

Reuters: [2008-05-14 10:52:00]

(Changes dateline, byline, adds quotes, updates prices)

By Veronica Brown

LONDON, May 14 (Reuters) - The dollar rose broadly on Wednesday, building on gains made after robust U.S. retail data, with attention turning to inflation figures that could heighten chances of a pause in the Federal Reserve's rate cut campaign.

Inflation is the major focus on both sides of the Atlantic, as the Bank of England releases its quarterly inflation report at 0930 GMT before the U.S. consumer price index at 1230 GMT.

The dollar was bolstered after data on Tuesday showed retail sales, excluding the hard-pressed auto sector, rose 0.5 percent in April, more than double economists' forecasts.

The greenback, which has rallied on speculation the Fed is done with cutting borrowing costs after slashing by 325 basis points since September, also garnered support from Fed comments emphasising inflation concerns.

Cleveland Fed President Sandra Pianalto said core inflation measures were rising faster than she liked and called inflation "a key risk".

Dallas Fed President Richard Fisher said it was unclear whether a slowing U.S. economy would be enough to alleviate cost pressures. [ID:nN13441127]

Economists in a Reuters survey expect a median 0.3 percent gain in the CPI and an annual rise of 2.4 percent in core CPI excluding food and energy items.

"From the comments we've seen from most of the Fed officials, it feels like they want to indicate that we're at or very close to the bottom of where Fed funds need to go," Caylon currency strategist Darah Maher said.

"The inflation number today, if it comes in around 2.4 percent then its still above the Fed's comfort zone. So if they are more confident that growth will recover and financial armageddon will be side stepped, well then I guess you have to say real rates based on core are negative and that's already pretty accommodative," he added.

The dollar was up 0.3 percent on the day at 105.15 yen <JPY=>, while the euro fell more than a quarter percent to session lows around 1.5403 <EUR=>, with traders citing strong dollar buying versus Asian currencies as a factor dragging the single currency down.

The euro is now down some 3.7 percent from record highs hit last month at $1.6018, according to Reuters data. Against a basket of six major currencies, the dollar was up 0.3 percent at 73.532 <.DXY>.

UK INFLATION

Currency markets were little moved by Fed Chairman Ben Bernanke's comments on Tuesday that the central bank's liquidity measures had helped relieve strain in financial markets, but that the recovery process remained incomplete.

Sterling was mired at near-three month lows versus the dollar <GBP=> as investors awaited the Bank of England's key quarterly inflation report for any signs price pressures will cap the pace of growth-boosting interest rate cuts.

The BoE is trapped between rising inflation sparked by sky-high food and energy costs and a sharply slowing economy, as evidenced by a recent run of poor economic data.

For sterling the current worry is that not cutting rates fast enough may seriously hamper growth, so a surprisingly big jump in April consumer prices on Tuesday was seen as a negative.

The BoE has cut rates by 75 basis points since December, taking them to 5 percent.

"The central bank will have to be careful before sending an overly hawkish message to the markets. Recent data suggests downside risks to growth in the UK have intensified," UBS strategists said in a note to clients.

Most analysts polled by Reuters predict UK rates will fall to 4.75 percent in June, despite stubbornly high inflation [BOE/INT]. (Reporting by Veronica Brown; Editing by Chris Pizzey) ((RM:veronica.brown.reuters.com@reuters.net; Tel: +44 207 542 6745))

Keywords: MARKETS FOREX