22 October 2001, 15:09 Forex - Euro slightly higher in midday trade but still under pressure
LONDON (AFX) - The euro was slightly higher in quiet midday trade
but market participants said the currency remained under heavy pressure
from the unwinding of long positions and worries about the state of the
euro zone economy.
However, they added that there is little enthusiasm to buy the
dollar, given the near-term economic, political and military
uncertainties.
One dollar uncertainty relates to the raft of US corporate news
this week, from the likes of Compaq, Lucent Technologies and American
Express.
Disappointing news could trigger a slide in equity markets and
damage the dollar in consequence, dealers noted.
Paul Mackel, forex strategist for Dresdner Kleinwort Wasserstein,
said the euro will continue to be undermined as long euro/dollar
positions get unwound. Euro/dollar could dip to be below 0.8900 usd in
the coming weeks, he said.
However, market participants remain cautious and the euro could be
bid up if anything really bad on the anthrax front happens, he said.
Mackel expects the European Central Bank to cut interest rates by
25 basis points after Thursday's meeting taking the refi rate to 3.5
pct.
He said any delay would further damage the ECB's credibility, which
is "already in tatters".
BNP Paribas' senior currency strategist Ian Stannard thinks the ECB
may decide to delay until its first meeting in November so it can
offset charges that it is being pressured by European leaders into
cutting rates.
"If they are under political pressure, it may make them more
reluctant to go now," said Stannard. "They will look to maintain their
independence."
To the eventual satisfaction of ECB President Wim Duisenberg, the
EU leaders agreed at the Ghent summit to water down an original draft
statement which said rates could be cut, to one suggesting that a fall
in inflation gives authorities "room to manoeuvre" on monetary policy
Nevertheless, Barclays Capital's currency strategist Jane Foley,
thinks the euro will remain under severe pressure against the dollar
whatever the ECB decides given the state of affairs in Europe.
"The growth outlook is very miserable," she said.
The dollar remains supported by the market's perception that the
massive fiscal and monetary loosening will help the economy bounce back
strongly next year.
Foley noted that the US is planning to inject some 200 bln usd, or
2 pct of GDP into the economy. That compares favourably with the euro
zone, which is constrained by its budgetary difficulties.
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