TOKYO, May 8 - The euro fell from four-year peaks against the dollar and yen on Thursday as dealers liquidated long positions, triggered by rising speculation that the European Central Bank might cut interest rates later in the day. "To put it in simple terms, it's unwinding of long positions," said an interbank dealer at Mizuho Corporate Bank. "The euro had been strengthening against most currencies, including the dollar, yen, sterling and Swiss franc and so players are getting rid of their longs they had accumulated."
The single currency had been rising steadily against a backdrop of steady fund flows into the eurozone amid investors' appetite for higher-yielding assets. Europe's interest rates -- the ECB's benchmark rate is now at 2.50 percent -- are higher than the Federal Reserve's federal funds rate at 1.25 percent. Although the market consensus is still for no rate cut at the ECB's policy-setting meeting, speculation is rising that the central bank could ease monetary policy to spur economic growth in the region and halt the euro's export-crimping rise. The ECB's decision is due at 1145 GMT. Dealers said the euro's decline was further induced by falls in sterling amid expectations of a rate cut by the Bank of England, which is also due to meet later in the day.
A poll found that 20 out of 32 economists expected the bank to cut rates again three months after it chopped the benchmark rate to a 48-year low of 3.75 percent. The euro was trading at $1.1316/17 at 0528 GMT, down from $1.1354/60 in late U.S. trade. Against the yen, the euro was quoted at 131.97/08, compared with late New York's 132.20/31.
DOLLAR/YEN NERVOUS
Dollar/yen trading was tentative as the market remained on edge over possible yen-selling intervention by Japanese monetary authorities. The greenback recovered from 10-month troughs of 116.07 yen hit in New York but became trapped in a razor-thin range around the mid-116 yen level, with the downside supported by fears of intervention and the upside capped by bearish views on the U.S. economy. "I think you can say that intervention could take place any time," said Toru Umemoto, currency strategist at Morgan Stanley. "There's a possibility the authorities might intervene in large amounts this time with an official announcement to stop the yen from rising towards 115," he added. Japanese monetary authorities had conducted so called "stealth" interventions since January in the hope that the effect would be more profound than meddling in large amounts and acknowledging they had in fact intervened.
Data released on Thursday showed Japanese authorities spent 2.38 trillion yen ($20.44 billion) on currency intervention in the January-March quarter, buying the dollar and euro. Comments by Finance Ministry officials added to market fears. Japan's top financial diplomat Zembei Mizoguchi said moves in the currency market in the past one to two weeks had been rapid, warning that officials would intervene if they saw the need. "We will closely watch the market and take necessary action when needed," Mizoguchi, vice finance minister for international affairs, told reporters as he arrived for work.
The dollar was quoted at 116.61/66 yen in afternoon trade, compared with the New York close of 116.30/38. Traders said buying by Japanese importers also helped the dollar from its lows. "We see strong buying interest among importers with the dollar at the 116 yen level," said Kouki Muroi, deputy manager of forex trading at Aozora Bank.//