13 August 2001, 15:21  Forex - Euro higher in midday London on continuing dollar weakness

LONDON (AFX) - The euro capitalised on broad dollar weakness to climb higher in midday trade as market sentiment continued to be pessimistic over the prospect of economic recovery in the US. The single currency appeared set for the 0.90 usd mark, although its progress has been slowed by the European Central Bank's reluctance to reduce interest rates so far. Even so, the ECB's latest monthly bulletin hinted that it may be ready to do so amid slowing euro-zone growth. "0.90 usd looks possible this week, although it remains to be seen if the euro can sustain enough momentum to stay above that level," Jane Foley, economist at Barclays Capital said. The thin August trade may also be helping the euro. There could be some change when volumes return to normal next month, she said. The overall story is still one of dollar weakness. The dollar has not been able to shake off the negative effects of last Friday's US PPI numbers while tomorrow's retail sales numbers may add to the greenback's woes. While in the past the US Fed's massive rate cuts have underpinned the dollar, focus has slowly shifted to the continued weakness in US economic data - which signals a deep and prolonged downturn, economists said. An ECB rate cut at the end of the month may further boost the euro, Foley noted. The euro also advanced on sterling. Some of the trade may be corporate linked, dealers said. It is uncertain if this trend will continue, given that the UK economy appears more resilient than the rest of Europe. Today's UK PPI numbers were generally weaker than expected indicating that pipeline inflationary pressure continues to fall "Weaker global demand for manufactured goods, high-tech goods in particular, is limiting manufacturers' ability to raise prices. In inflation terms, this is good, but not new, news," David Hillier, economist at Barclays Capital said. The yen was steady against the dollar also on the latter's all-round weakness.

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