19 February 2002, 12:19 Forex - Euro weakens in early trade after German wholesale prices disappoint
LONDON (AFX) - The euro weakened in early trade after disappointing
German wholesale prices reduced hopes of an imminent rate cut from the
European Central Bank, dealers said.
German wholesale prices rose 1.2 pct in January from December and
were up 0.2 pct from Jan 2000. This compares with a year on year fall
of 1.5 pct in December.
"This constrains the ECB from cutting rates," said Merrill Lynch's
senior currency strategist Neil Mackinnon. The US's growth profile
remains far better, he said.
Mackinnon also said the euro is breaking down on a technical
perspective and he wouldn't be surprised if euro/dollar falls through
the Feb 1 low of 0.8564 usd.
WestLB's currency strategist Michael Klawitter thinks there is a
"clear risk" that the downward momentum in euro/dollar will gain pace
in coming days, primarily on technical reasons.
Some pressure may also come from the growing debt crisis at Kirch
Media which has the potential to hit several German banks severely, he
noted.
There will also be some interest in the forward looking German ZEW
survey which may serve as a gauge for the crucial Ifo index, Klawitter
added.
Meanwhile, dollar/yen is edging higher on disappointment about the
speed of reform in Japan following the meeting between President George
W. Bush and Prime Minister Junichiro Koizumi.
The Nikkei's sharp overnight fall following comments from finance
minister Masajuro Shiokawa also hit sentiment in the yen. Shiokawa said
the government will not ask the Bank of Japan to buy foreign bonds held
by domestic institutions as a way to ease monetary policy further.
There's also some interest in sterling this morning, ahead of a
speech from the Bank of England governor Eddie George.
"We'll keep an eye on what he says, and whether he will dampen down
expectations of a rate hike," said Merrill Lynch's Mackinnon.
However, he noted that an interest rate hike by the summer may be
likely following further evidence that the UK's two-speed economy is
persisting.
The Royal Institution of Chartered Surveyors said prices are rising
at their fastest rate since last summer, as the supply squeeze
continues.
According to RICS, prices are rising most rapidly in the north but
London is also seeing a recovery after a dip at the end of last year.
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