30 May 2001, 13:23 Forex: Euro down in early London on stagflation fears
LONDON (AFX) - The euro weakened slightly against the dollar in
early London trade, against the disheartening scenario of high
inflation, weakening growth and declining French business confidence,
dealers said.
Weaker-than-expected May French business confidence of -17 hit
sentiment in what dealers said was a sign that the euro zone slowdown
is now having an impact on France, which has been resilient until now.
The data follows yesterday's higher-than-expected Italian inflation
figures.
"This is not going to help the euro," said CIBC's Audrey
Childe-Freeman, adding that there was a case for the European Central
Bank's governing council to cut interest rates again.
Earlier, one of Germany's five economic wise men, Juergen
Kromphardt called for the ECB to cut interest rates by a further 0.5
pct.
And yesterday the president of Germany's Ifo research institute,
Hans Werner Sinn, said the ECB should follow up its recent 0.25 pct
rate reduction with another cut.
"I think that's the right way. I totally agree with him. It's
becoming increasingly urgent," said Childe-Freeman.
She expects a quiet directionless week for currencies, with
investors cautious ahead of the U.S. non-farm payroll data out on
Friday.
She sees further downside to the euro despite a stabilisation in
the euro over the last week after rumours of ECB intervention which,
she said, also limited the impact of the French business confidence
data.
"As we move along the week if we get any kind of strength in the
U.S. non-farm payroll data the euro is going to end the week lower."
Both Childe-Freeman and IDEAGlobal.com global strategist Simon
Hayley dismissed market rumours last night of Bank of Japan
intervention.
Childe-Freeman said, "At the end of the day there was no
intervention. It was just a German bank giving a large commercial
order. Because the market was probably quite thin, it had quite a
strong impact on euro-yen and that triggered talk about intervention."
Hayley added, "it does illustrate how nervous the markets are at
the moment."
Last night's failure of the Lucent Technologies Inc and Alcatel SA
merger talks, which was expected to be euro-positive in terms of
corporate capital flows, had little impact.
"It may have been a story last night but it's not this morning.
None of my traders have mentioned it," said Childe-Freeman.
The euro also failed to react to this morning's M3 figures. Euro
area adjusted M3 grew 4.7 pct year-on-year in April, up from a
year-on-year growth rate of 4.6 pct in March.
The three month moving average of adjusted M3 year-on-year growth
rates was 4.6 pct in the February-April period compared with 4.5 pct in
January-March.
The yen also weakened slightly against the dollar in early trade on
overnight losses in the Nikkei, dealer said.
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