Euro rebounds after Trichet rules out zero rates

Friday, January 16, 2009

AFP - 28 TOKYO (AFP) - - The euro rebounded in Asian trade on Friday after European Central Bank chief Jean-Claude Trichet ruled out following the United States and Japan in cutting interest rates to zero.
The euro firmed to 1.3219 dollars in Tokyo afternoon trade from 1.3121 late Thursday in New York, and jumped to 119.43 yen from 117.89. The dollar strengthened to 90.36 yen from 89.86.
The European currency rose from one-month lows against the greenback after the remarks by Trichet, who said however that the ECB may have room to reduce borrowing costs in the eurozone further from the current level of 2.0 percent.
"If you ask me the question, 'will you go to zero?' I would say 'no we won't,'" he told Japanese broadcaster NHK.
Trichet hinted after the ECB's 50-basis-point rate cut on Thursday that another move was unlikely in February, but he left the door open to a further reduction in borrowing costs in March.
Despite the euro's rebound, markets believe the European unit will dip again, particularly ahead of the ECB's March meeting, said Sumitomo Mitsui Banking Corp chief strategist Daisuke Uno.
ECB With the 16-nation eurozone in its first recession, some dealers say it may be only a matter of time before the ECB is forced to cut rates again.
"We still believe that the downturn in the eurozone will justify one more rate cut and that rates will reach a record low of 1.5 percent in March," NAB Capital strategist John Kyriakopoulos wrote in a note.
"After that, we believe that the economy will be more reliant on additional stimulus measures rather than simply cutting rates," he added.
Investors were waiting for a batch of US economic indicators due out later in the day including inflation data and a consumer sentiment survey.
Analysts widely expect the consumer price index for December to show the first annual fall since 1955, which may heighten worries over deflation.
Against Asian currencies, the dollar fell to 11,091 Indonesian rupiah from 11,160 a day earlier, to 1.4907 Singapore dollars from 1.4956 and to 1,370.68 South Korean won from 1,376.40.
It declined to 47.25 Philippine pesos from 47.28 and to 34.85 Thai baht from 34.88, but edged up to 33.34 Taiwan dollars from 33.31.