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Forex - Euro continues to edge higher ahead of ECB rate decision Thursday

Wed, Jul 2 2008, 08:46 GMT
http://www.afxnews.com

LONDON (Thomson Financial) - The euro continued to edge higher against the dollar ahead of an expected interest rate rise by the European Central Bank Thursday.

A stronger-than-expected ISM survey on U.S. manufacturing activity Tuesday gave the dollar a brief boost, but this was soon reversed as market players remain sceptical that the U.S. economy has turned a corner.

"The dollar's failure to rally despite the firm headline ISM number shows investors are highly sceptical of the U.S.' near-term economic prospects," said Geoffrey Yu at UBS.

Although the data may suggest that the U.S. may avoid a sharp downturn, several leading indicators still point to "significant downside risks" and the macro environment will "remain challenging" for rate setters at the Federal Reserve, he said.

Meanwhile, market attention is turning to the European Central Bank's interest rate decision Thursday, where a quarter point interest rate rise is widely expected in a bid to counteract rising inflationary pressures.

Weakness in the economy, however, is likely to mean that the ECB will have little or no room to raise rates beyond that and as such euro zone PPI data Wednesday will be closely watched.

"The ECB is widely tipped to hike rates tomorrow but many see this as a one off, so any suggestion that inflationary pressures are building could see opinions shifting here as a result," said James Hughes, Market Analyst at CMC Markets.

Elsewhere, the pound fell to 23-day lows against the euro amid concerns over the outlook for the UK retail and construction sectors as Marks & Spencer Group PLC shares fell sharply following weak like-for-like sales figures, while shares in Taylor Wimpey and other housebuilding stocks also slumped.

London 0824 GMT London 0300 GMT

U.S. dollar

yen 106.36 up from 105.99

Swiss franc 1.0187 down from 1.0190

Euro

U.S. dollar 1.5812 up from 1.5804

pound 0.7948 up from 0.7925

yen 168.18 up from 167.45

Swiss franc 1.6111 up from 1.6101

Pound

U.S. dollar 1.9892 down from 1.9937

yen 211.70 up from 211.31

Swiss franc 2.0271 down from 2.0321

Australian dollar

U.S. dollar 0.9605 up from 0.9585

pound 0.4827 up from 0.4807

yen 102.21 down from 101.57

jessica.mortimer@thomsonreuters.com

jkm/ajb

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