Euro eases as traders square up ahead of FED and ECB High Street Networking

5 May 2003, 10:52 Euro eases as traders square up ahead of FED and ECB

SINGAPORE, May 5 - The euro eased slightly in Asian trade on Monday as players booked some profits on its sharp rally ahead of policy-setting meetings of the Federal Reserve, European Central Bank, and Bank of England this week. "The markets are looking at the Fed and ECB and before that they are trying to consolidate their positions," said a dealer at a European bank in Singapore. Trading was thinned in Asia by a Japanese holiday, and Europe was expected to be affected by a holiday that will close London markets, and there was also caution over Japanese intervention. The U.S. Federal Reserve meets on Tuesday and is expected to leave the fed funds rate unchanged at 1.25 percent. Double click [FED/R] to see latest Fed poll. The European Central Bank meets on Thursday and was also expected to leave rates unchanged. In contrast, most economists polled by expect another rate cut by the Bank of England later this week.
As traders paused ahead of the meetings and squared up some positions, the euro pulled back from last week's four-year highs of $1.1287 against the dollar and 133.78 on the yen . That helped the yen move a notch higher against the dollar, though it showed no inclination to head back to Thursday's one-month high of 118.12 as dealers said its upside was limited by fears of intervention by Japanese authorities. The caution followed a Jiji Press report on Friday that Japan would call for yen-weakening intervention as part of a stimulus package expected to be announced this week.
POLICY INACTION
Analysts said the lack of momentum on Monday was not only due to the holidays, but because the market had already priced in the Fed's expected policy inaction on Tuesday. "Unless the Fed surprises, the market should stay in a range," said Lee Boon Keng, treasury markets strategist at DBS Bank in Singapore. A key factor would be the accompanying statement from the Federal Reserve. Comments suggesting a further U.S. easing would support high yielding currencies such as the euro, Canadian dollar and Australian dollar -- which all hit mutli-year highs on the dollar last week.
Naomi Fink, currency strategist at UBS Warburg in Singapore said the focus would shift back to U.S. fundamentals after the Fed meeting. UBS Warburg expects no change in rates on Tuesday. "While there may be some signs of recovery in the U.S., unless they are very strong what we are going to see is a return to the dollar bearish trend," she said. Data on Friday showed U.S. unemployment rising to 6.0 percent as the economy shed 48,000 jobs against forecasts of a 5.9 percent jobless rate and 53,000 lost jobs. The market had sold the dollar before the data, expecting poor news. Fink said a sustained U.S. stock market rise after the reporting season ended might help the dollar. But with U.S. rates at historical lows, interest rate differentials were likely to keep funds flowing towards the euro zone. //