The dollar steadied near one-month highs against the euro as traders waited to hear what German Chancellor Gerhard Schroeder would say about currencies when he meets U.S. President George W. Bush later on Friday. Euro zone leaders Schroeder and French Prime Minister Jean-Pierre Raffarin have criticised euro strength this week and called on the European Central Bank to cut interest rates. Media reports suggesting the ECB may be warming to the idea of an interest rate cut have put additional pressure on the euro but ECB council member Nicholas Garganas poured cold water on the speculation in a newspaper interview on Friday. He told the Financial Times a strong euro was not stifling the euro zone economy and advised "staying cool" on the exchange rate issue.
"The comments from Garganas have given the euro some support," said Ryan Shea, senior international economist at Bank One. "His message is that the ECB is not prepared to cut interest rates just yet and will not succumb to political pressure." The euro was steady on the day at $1.2430 by 0910 GMT having fallen to a one-month low of $1.2380 on Thursday. It is now five cents below a record high set earlier this month.
JAPAN INTERVENTION DATA
The yen was stronger against both the euro and the dollar after data showed Japan's industrial output rose strongly in January. It was up half a percent at 135.60 to the euro and 109.15 to the dollar . Dealers said the next focus would be data at 1000 GMT showing how aggressive Japanese intervention has been this month. Japan spent a record seven trillion yen in January in a bid to retain export competitiveness and anecdotal evidence suggests the authorities have been intervening steadily this month, even as the dollar has recovered. "If the data shows Japan intervened heavily again in February after selling a record seven trillion yen, yen-buyers will become discouraged," said Mitsuru Sahara, vice president of UFJ Bank's foreign exchange dealing group. Later in the day, U.S. gross domestic product data for the fourth quarter is slated to land at 1330 GMT and the University of Michigan consumer sentiment survey is due at 1445 GMT. A first estimate of euro zone inflation for February will be released at 1100 GMT and is expected to indicate how much scope the ECB has to lower rates should it choose to. Inflation is forecast to fall 1.7 percent on the year, below the ECB's 2.0 percent target ceiling. While many in the market doubted that ECB easing or intervention was imminent, they expected more verbal jawboning from European policy makers, which could cap the euro. "Central banks won't act if there is outside pressure on them to do something," said Seiya Nakajima, chief economist at Itochu Corp. "I'm not sure how deep the euro's adjustment will get, but if you look for euro-negative factors, there are lots of them. The euro zone economy is doing worse than the U.S. and Japan," he added.//