May 19, 2005
Forbes
LONDON (AFX) - The euro gave up recent gains as political concerns continued to dog the single currency.
Analysts said the euro has been pushed onto the backfoot by fears the French will vote against the EU constitution in ten days time, while Germany's governing SPD party looks set to suffer a poor regional election result this weekend in North Rhine-Westphalia.
'The euro's recovery at the end of last week after the lower-than-expected US TIC data has fizzled out and the euro faces a number of problems,' said Neil Mackinnon, chief economist at ECU Group.
'There is upcoming political event risk that is hurting the euro and I believe there is more to go on the downside,' he said.
Last week, the euro broke below crucial support levels against the dollar of 1.2730 usd and is now trading at near seven month lows.
However, the dollar's gains have been limited by fading expectations of more aggressive US interest rate rises after tame inflation data.
'The benign inflation report has strengthened the belief of some market participants that the Federal Reserve will soon pause' over rates, said Derek Halpenny, analyst at The Bank of Tokyo-Mitsubishi.
US consumer prices rose 0.5 pct in April, driven by the sharpest increase in energy prices in more than two years, but the core rate, excluding the volatile food and energy components of the consumer price index, was unchanged.
Focusing dealers' minds also was the South Korean central bank's denial of a news report that said it would stop intervening in the currency markets.
The Financial Times newspaper had reported that Bank of Korea governor Park Seung had said in an interview that the central bank, which has spent billions of dollars in the foreign exchange markets to contain the won, would end the practice.
A lack of central bank purchases could erode support for the dollar on global markets, dealers claimed.
Meanwhile, the yen faced pressure from fading speculation that China would soon revalue its currency, the yuan.
A US Treasury report effectively provided China with a six-month window to deliver some change or face being labelled a currency manipulator, a designation under US law that could entail trade sanctions.
The widely held view in the currency market is that China will not change its policy soon because to do so would make it look as if it was acting under US pressure.
The pound meanwhile was steady after official data showed that British retail sales rose by 0.5 pct in April from the previous month, easing fears of a sharp slowdown on the high street.
London 1125 GMT London 0810 GMT
US dollar
yen 107.28 up from 107.12
sfr 1.2201 up from 1.2186
Euro
usd 1.2647 down from 1.2664
stg 0.6873 down from 0.6886
yen 135.64 down from 135.66
sfr 1.5429 down from 1.5433
Sterling
usd 1.8402 up from 1.8396
yen 197.38 up from 197.06
sfr 2.2450 up from 2.2418
Australian dollar
usd 0.7591 up from 0.7589
stg 0.4125 down from 0.4126
yen 81.44 up from 81.31
pp/jsa
http://www.forbes.com/markets/feeds/afx/2005/05/19/afx2040043.html