The euro rose against the dollar and the yen on Monday as expectations faded that the European Central Bank (ECB) would decide to cut rates at its meeting later in the week to sap the euro's strength. Euro bulls were also relieved after the meeting on Friday between U.S. President George W. Bush and German Chancellor Gerhard Schroeder did not produce any surprises on foreign exchange, with both leaders repeating their official lines on forex policy. "I think a mixture of all these elements is supporting the euro for now," said Mitsuo Imaizumi, deputy general manager of the international bond and forex department at Daiwa Securities SMBC. "But I'm not expecting the euro to rise too far," he said, adding that a rise above $1.26 was unlikely for now. Traders think the dollar may be at a crucial stage after its four-percent rebound in the past two weeks, and the currency's failure to extend gains could be seen as the return to its two-year downtrend.
"It's really difficult to tell what the trend is," said a trader at a U.S. bank. By 0642 GMT, the single currency was at $1.2525/36 after hitting a session high around 1.2538 earlier in the day. It fetched 1.2485/91 in late U.S. trade on Friday. Against the yen, the euro was at 136.82/85 yen versus 136.24. The dollar was slightly higher at 109.23/26 yen , compared with around 109.10 yen in late U.S. trade, but off its three-month high around 109.85 yen hit last week.
ECB IN FOCUS
On Friday, the euro was helped by a report from a prominent research firm, Medley Global Advisors, that discounted the possibility of the ECB cutting interest rates at its meeting on Thursday. But the euro could come under pressure if speculation for an ECB rate cut lingers after the meeting, depending on what ECB President Jean-Claude Trichet says at the news conference that follows. "The market now thinks the ECB won't cut rates this time," said Shogo Nagaya, forex manager at Nomura Trust and Banking Corp. "But speculation for an easing could remain, so the market is keenly awaiting the ECB press conference." Another important focus is U.S. payrolls data due on Friday, as an improvement in the jobs market could hasten a possible tightening by the Federal Reserve. That would be beneficial for the dollar, given that the currency's low interest rates have been hampering global investors' buying of the dollar. Later in the day, the market will look to the Institute for Supply Management's February manufacturing index, due at 1500 GMT. The index is expected to fall to 62.0 from 63.6 in January due to a lack of new orders and ongoing weakness in the jobs market, according to a survey of economists. The gauge's widely watched employment component may tick up in February but not by much, the poll consensus showed. The market showed negligible reaction to an Iranian radio report, subsequently denied by the U.S. and Pakistani authorities, that al Qaeda leader Osama bin Laden had been captured.///