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To: hobo who wrote (10480)	4/18/2001 7:54:32 PM
From: hobo	Read Replies (1) \| Respond to of 10876

Euro Recovers From Fed Shock April 18, 4:00 PM: EUR/$..0.8850 $/JPY..122.27 GBP/$..1.4274 $/CHF..1.7280 Euro Recovers From Fed Shock by Stacey Yang The euro posted an impressive recovery gaining as much as 200 points after having tumbled to a 4 month low of 86.97, following a surprising 50-bp rate cut by the Federal Reserve. The FOMC reasoned: Capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward. The Committee also explained its move on the basis of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, threaten to keep the pace of economic activity unacceptably weak. The euro joined the sterling, yen, and swiss franc in their knee-jerk fall against the US dollar, but hopes that the ECB will respond to the Fed's move propelled the single currency back to the 88.50s. Despite the 8% rise in NASDAQ and the 4% rally in the Dow, the USD was unable to hold onto its intra-day gains. BuBa's Ernst Welteke reaffirmed earlier today his ECB colleague Trichet's position that the central bank decided at the April 11 meeting that since upward price pressures continue to threaten Eurozone price stability, a rate cut is unessential for the time being given that growth is anticipated above 2%. Welteke's remarks contradict those of IMF Director Koehler who was quoted in a magazine as saying that "In the current critical phase of the European and world economies lower interest rates in Europe would certainly help, without endangering the European Central Bank's stability course". Belgian Fin Min Reynders urged the ECB to "take responsibility" amid slowdown euro economy, repeating calls that a strong euro based on a strong economy is in Europe's interests. $/JPY fell to a fresh 3-week low of 122.20 as EUR/JPY dropped to a 1 1/2 month low of 106.66. A deluge of jawboning by Japanese officials coupled with increased market perception that the ECB is falling behind the policy curve weighed on the cross pair. Earlier today Japanese Fin Min Miyazawa denied any plan to devalue the yen saying that "even if I had said the Japanese government wanted to adopt a policy of seeking yen weakness, I don't think the G7 nations would say that would be appropriate". In a recent Reuters poll, 24 out of 25 dealers predicted the Fed would cut rates again at the May 15 meeting, with over half forecasting a 50 bp cut, because they foresee a 33% chance of the US economy entering a recession this year. The February trade gap of $26.99 bln was the lowest since Dec 1999 deficit of $25.66 bln as a result of the decline in imports of $5.4 billion, the largest monthly fall on record, while exports increased slightly by $1 billion. The US deficits with China, the lowest in two years, and Western Europe fell by over $2 billion each, while the deficit with Japan rose marginally. US equities, already boosted by Intel and Texas Instruments' positive news, skyrocketed following the Fed's surprise rate cut announcement. Dow shot up 3.91% or 399 points to 10615, and NASDAQ soared 8% or 156 points to 2079. Tomorrow's US economic data releases include the Philadelphia Fed survey, which is expected down at -20.0 from previous -23.5, and is likely to confirm an easing in the slowdown in April manufacturing. Also due tomorrow is the British inflation indicator RPIX, which is expected to fall to 1.8% from 1.9% y/y. Euroarea March HICP is anticipated to fall to 2.5% from 2.6% y/y, 0.3% from 0.6% m/m. On Friday, February Industrial Production for the Eurozone is forecasted up 0.6% from 0.1% m/m.