Forex - Major currencies remain steady; eye on central bank rate decisions, G7
02.07.07, 9:49 AM ET
forbes.com
LONDON (AFX) - Major currencies remained steady, with investors looking ahead to central bank rate decisions in Europe tomorrow and the G7 meeting in Germany this weekend.
The euro kept near the 1.30 level against the dollar as investors avoided large movements before the European Central Bank (other-otc: CHPA.PK - news - people )'s rate announcement tomorrow.
'While the dollar's deteriorating technical picture leaves some upside risks in eur/usd, we doubt that a lasting break above 1.30 is likely ahead of tomorrow's ECB meeting,' said Michael Ramon Klawitter at Dresdner Kleinwort.
While analysts expect the bank to keep rates unchanged at 3.50 pct, many warn that the rhetoric may be hawkish and signal a rate increase in March.
'Trichet is set to reintroduce the words 'strongly vigilant' with regard to inflation risks, a precursor to an imminent rate hike,' said Mitul Kotecha at Calyon, adding that 'hawkish rhetoric may not benefit the euro as much as would have been expected, especially given that a 25 point rate hike is already in the price for March.'
The euro is expected to benefit only if the market renews its expectations for a hike in the second quarter, which markets have not yet priced in.
Also in focus this week is the Japanese yen, particularly ahead of the upcoming G7 meeting this weekend, which is expected to discuss the issue of a weak yen.
However, whether the G7 will propose any policy solutions or even mention the need for a stronger yen, is far from certain.
'There is little to no chance of Europe getting the all-important line on the yen into the communique (which would be necessary for the yen to rise),' said Gavin Friend at Commerzbank.
He added that while carry trades create instability in foreign exchange markets, 'the point has not yet been reached where the G7 will formally acknowledge this as a group in its communique.'
Elsewhere, the pound remained steady ahead of the Bank of England's rate decision. The Bank of England is also expected to keep interest rates unchanged, although some analysts do not rule out a surprise hike, as delivered in January. Most expect at least some hawkish rhetoric to signal that a hike is due in coming months.
'With the market only pricing in a 25 pct risk of a February move, the (BoE) will probably be unwilling to shock the markets over two consecutive months,' said Matthew Sharratt at Bank of America (nyse: BAC - news - people ).
London 1415 GMT London 0915 GMT |
