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FOREX-Dollar rises versus euro after Trichet's comments

Thu, Sep 4 2008, 14:03 GMT
http://www.afxnews.com

NEW YORK, Sept 4 (Reuters) - The dollar rose against the euro on Thursday after the European Central Bank said the euro zone was in a period of weak economic activity and lowered its growth forecast for 2008 and 2009.

Euro zone economic data point to a weakening in growth at midyear, ECB President Jean-Claude Trichet said after the bank left interest rates at 4.25 percent on Thursday.

But Trichet cautioned that inflation remains high and the risks are to the upside For more details, see [ID:nL4102376].

The ECB also slashed its growth forecast for the euro zone. Growth in the euro zone was seen at 1.1-1.7 percent, for a midpoint of 1.4 percent, in 2008 and 0.6-1.8 percent in 2009, for a 1.2 percent midpoint.

Three months ago, the ECB had predicted economic growth of about 1.8 percent this year and 1.5 percent in 2009. ID:nL4276616]

"It looks like the euro is weakening off a little bit as the market seizes on President Trichet's observation that the euro zone economy is in an episode of weak activity," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto.

"However, Trichet continues to highlight upside risks to inflation, suggesting policy-makers aren't in any rush to lower rates," he added.

In early New York trading, the euro <EUR=> fell 0.1 percent on the day against the dollar to trade at $1.4468, pulling back from $1.4480 before Trichet's comments.

The dollar <JPY=> was down against the yen at 108.11 yen, off 0.2 percent.

The dollar index <.DXY> edged 0.1 percent higher to 78.080, in part kept in check by a 0.4 percent rise in oil prices, which were recovering from a roughly 9 percent fall so far this week.

Sterling <GBP=> rose 0.5 percent to $1.7824, benefiting from a "relief rally" after the BoE decision to leave interest rates unchanged at 5.0 percent. Some investors had positioned for a BoE cut.

The euro was down 0.5 percent at 81.22 pence <EURGBP=>.

On the U.S. economic front, the dollar showed little reaction after a report showed private-sector job contraction of 33,000 last month, roughly in line with forecasts for job losses of 30,000. The ADP also revised July's gain to 1,000 from the 9,000 previously reported. [ID:nWEN7776]

Separately, a Labor Department report showed the number of people filing for jobless benefits jumped by 15,000 in the latest week. [ID:nN03319921]

"This (the rise) looks startlingly awful, but we have no way of knowing if the rise in claims reflects continued distortions caused by the extension of benefits, or the impact of Hurricane Gustav, or the underlying trend in claims or some combination of the three," said High Frequency Economics chief economist Ian Shepherdson.

"In short, the numbers are grim but it is impossible to say just how grim."

Central bank rate decisions were the theme of the day, with Sweden's Riksbank raising rates by 25 basis points to 4.75 percent in a widely expected move.

The euro <EURSEK=> was flat against the Swedish crown at 9.4795 crowns, having recovered from an earlier, initial slide after the Riksbank announcement.

(Reporting by Wanfeng Zhou and Nick Olivari; Editing by Jonathan Oatis) Keywords: MARKETS FOREX

tf.TFN-Europe_newsdesk@thomson.com

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