18 May 2006, 13:19  Euro at slightly lower levels

The euro was steady at slightly lower levels against the dollar amid concerns about the currency's recent ascent expressed by politicians in the euro zone "Vocal opposition to further forex appreciation by European policymakers - not least the French Finance and Trade ministers and the German Economy minister has chipped away at the euro's veneer," said Steve Pearson, chief currency strategist at HBOS The jawboning about the euro's rapid ascent pushed the euro under 1.28 usd overnight "Suddenly bad news such as the decline in the German ZEW survey - is beginning to get attention," added Pearson The closely watched ZEW index slumped more than expected earlier in the week, dampening predictions that the European Central Bank may effect rate hikes larger than the usual quarter point But so far the complaints appear to be limited to politicians and not European rate setters "It would make little sense for the ECB to voice explicit concerns about the strength of the euro in view of the hawkish comments on the monetary policy," said Antje Praefcke at Commerzbank Corporates and Markets "Due to the continued dollar negative sentiment on the markets there is further upside potential for the Euro in the coming weeks," she added The euro's softer tone was aided in part yesterday by news of a pick up in US inflation levels which led to some speculation that US rate setters may be forced into another rate hike in June. Previously, investors seemed certain that June will bring a pause to the rate hiking cycle which started way back in 2004, taking the benchmark fed funds rate from 1.00 pct to 5.00 pct at present. Today, attention turns to the US Philly Fed index which is expected to show a modest drop to about 12.0 from 13.2

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