11 October 2001, 11:41  FOREX-Euro weakens, market eyes ECB, Afghanistan

By Carolyn Cohn
LONDON Oct 11 - The euro fell to 10-day lows against the dollar on Thursday as the market grew doubtful the European Central Bank would deliver a growth-boosting rate cut later in the session.
Concern about the global economic impact of the September 11 suicide attacks on U.S. cities and subsequent U.S.-led strikes on Afghanistan has made investors anxious for signs central banks are acting to fend off recession, analysts said.
But recent comments by ECB council members have fuelled doubts the ECB will react immediately to last week's half point interest rate cut by the U.S. Federal Reserve.
"The market has been carrying a very long euro/dollar position and slowly but surely the market has become less impressed with the upside," said Ian Gunner, head of foreign exchange research at Mellon Bank.
"If the ECB does not cut rates today, it removes all the potential positives for the euro."
The euro fell by nearly a quarter of a percent to levels just below $0.91 , its poorest performance since October 1, according to data, before recovering slightly by 0720 GMT.
The dollar was steady against the yen around 120.35 .
MOST ANALYSTS SEE CUT
A majority of economists polled by last week expected the ECB to cut its minimum bid rate on Thursday by a quarter point to 3.50 percent, in its fourth cut this year.
But traders' anxiety such a cut may not be delivered fed into the euro exchange rate on Thursday. A rate decision is due at 1145 GMT from the meeting, which this week takes place in Vienna and is followed by a news conference at 1230 GMT.
Germany's consumer price inflation for September was confirmed to have remained flat on the month, giving an annual inflation rate of 2.1 percent, a sharp drop from 2.6 percent in August and not far above the ECB's inflation ceiling.
The Bank of Japan also started its two-day policy meeting on Thursday. Most analysts expected the bank to leave its policy unchanged, comforted by relative stability in markets.
SPREADING UNCERTAINTY
After the United States initiated air strikes against Afghanistan's Taliban regime at the weekend, the dollar has trimmed losses against the yen and gained some ground against the euro.
Still, dealers said the looming uncertainty was too large to turn too bullish on the dollar, given that Osama bin Laden, the U.S.'s prime suspect of the September 11 attacks on America, was still on the run and calling for a "holy war" against the U.S.
Worries over possible reprisals within U.S. borders remained rampant after a third publishing firm employee in Florida tested positive for exposure to anthrax, which has so far killed one.
Anthrax is a rare and often fatal disease seen as a possible agent for biological warfare.
"Overall, I think the global economy has managed to avoid a catastrophe in the past month since the attacks on the U.S. But it would only take one more hijacked airliner to push the global capital market into chaos," said Masahiro Ishikawa, vice president at Bank One's Tokyo branch. Takashi Toyahara, manager at Nomura Securities in Tokyo, also said the complex nature of the latest conflict made it more difficult for dealers to hold dollar-long positions.
"This war is different from other wars in the past. We don't know how and when it will end. And the market is simply unable to digest this as a factor," he said.
While U.S. September retail sales data due on Friday were seen coming in soft, economists said the data may not reflect the full extent of the weakness after the deadly September 11 attacks on U.S. cities until they are revised next month

© 1999-2024 Forex EuroClub
All rights reserved