12 March 2001, 16:07 Forex: Euro stable in subdued midday London trade; sterling weaker
LONDON (AFX) - The euro was steady against all major currencies in
midday trade, with market activity muted due to a lack of significant
economic news from either side of the Atlantic, dealers said.
At 12.45 pm, the euro traded at 0.9286 usd, compared with 0.9307
earlier this morning.
With investors focusing on tomorrow's release of U.S. February
retail sales data, which is expected to show a 0.5 pct month-on-month
increase in total sales, the euro is likely to remain rangebound for
the rest of the day, dealers said.
"U.S. retail sales are an important indicator," Razia Khan at
Standard Chartered said.
"Pretty weak retail sales may not be the best thing for the euro,
as it does increase anticipation that the Fed may has to cut interest
rates again (and that will support U.S. equities)," she added.
According to the analyst, developments in emerging market
economies, such as Turkey, will also be a key for the market's
direction this week.
"The question is what level of support Turkey can hope to get from
the IMF. Turkey is asking for an incredible 25 bln usd; the market
however thinks that it probably won't get that much," Khan said.
"If there is some nervousness in the markets, the dollar will be
the beneficiary rather than the euro," Khan added.
Hence there is little scope for a further rally in the euro, she
noted.
"If there is a lot of nervousness we might see temporary gains in
the dollar," she said.
Micheal Klawitter at Westdeutsche Landesbank also expects the euro
to remain at current levels at least until the mid of the week.
According to the analyst, the next resistance is seen at 0.9378
usd, the euro's last high against the dollar on March 2, with the
strong resistance seen at the Feb 1 level of 0.9445 usd.
Elsewhere, sterling was slightly weaker against the dollar,
following the euro/dollar pair, while today's release of UK inflation
data for February had little impact on the market, dealers said.
"I do not think that today's numbers indicate any change in the
course of direction in terms of monetary policy," Khan said.
"Over the weekend -- as a reassessment of the budget -- there has
been an increase in expectations that interest rate cuts in the UK are
going to come down a lot sooner than previously anticipated. As one
would expect, that is working to weaken sterling," Standard Chartered's
Khan said.
Taking a closer look at today's figures, Micheal Hume at Lehman
Brothers said: "Producer prices data for February were a mixed bag,
with input prices surprising on the strong side but output prices
surprising on the weak side... These figures are unlikely to have much
of an influence on the MPC when they meet in March, but they do suggest
that goods price inflation will remain subdued in coming months."
UK manufacturers' raw material costs rose a seasonally adjusted 1.8
pct in February which left them 6.1 pct above their Feb 2000 level.
At the same time, output prices of manufactured products were down
0.1 pct in February from the previous month, and were up 1.6 pct from a
year ago.
Core output prices -- that is, excluding food, drink, tobacco and
petroleum product prices -- were unchanged on a seasonally adjusted
basis in the latest month for a 0.5 pct year-on-year increase.
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