By Chikako Mogi
TOKYO, May 8 (Reuters) - The euro slid to a two-month low
against the dollar on Thursday as a sharp drop in euro zone
retail sales raised worries about the region's economic outlook
and revived expectations for eventual rate cuts.
The European Central Bank is expected to keep interest rates
steady at 4 percent later in the day and repeat its concern over
inflation, but traders said mounting signs of slowing growth
suggested the ECB may lower rates before the end of the year.
But market players said it was too early to say whether the
euro is set for a sustained decline after hitting a record
against the dollar just two weeks ago.
The dollar was getting a boost from waning worries about the
credit market crisis, as well as signs that other economies are
starting to feel the impact from the U.S. slowdown.
"The euro may test lower below $1.52 over the next week as
markets seek adjustments after the recent dollar selling and euro
buying," said Kengo Suzuki, a currency strategist at Shinko
Securities.
"The focus today is on the ECB. If Trichet makes hawkish
comments as usual, the euro will be bought back at once."
The euro fell to $1.5285 <EUR=> on trading platform EBS, the
lowest since early March. It later trimmed some losses and was at
$1.5314.
Highlighting the fallout elsewhere, the New Zealand dollar
slid more than 1 percent after data showing the country's biggest
quarterly employment drop in 20 years stoked expectations for its
central bank to start cutting rates later in the year. []
"Markets are starting to feel more optimistic after having
priced in the worst-case scenario," said a senior dealer at a
Japanese trust bank.
"In contrast, negative factors are surfacing for the euro,
with recent economic data showing weakness. The market is not yet
fully seeing a turnaround, but is starting to incorporate such
negative factors bit by bit," he said.
Some euro selling was spurred by a Financial Times article
that said the United States and Europe now have a united desire
to see the dollar strengthen against the euro, traders said.
At a meeting last month, the Group of Seven major industrial
nations issued a strong expression of concern about sharp
currency swings.
"The G7 message against dollar weakness is still alive and
weighing on the euro," said a dealer at a big Japanese bank.
With the Bank of England also likely to hold rates at 5
percent later in the day, sterling was at $1.9516, hovering near
an 11-week low of $1.9503 hit on Wednesday after weak consumer
sentiment and employment data.
GROWTH IN FOCUS
As the market focus returns to fundamentals, concerns about
slowing growth hit the New Zealand dollar, while sliding gold
prices despite a rise in oil prices further helped support the
dollar.
The high-yielding New Zealand dollar <NZD=D4> slid as far as
$0.7710, its lowest level since late January. It was around
$0.7723, down 1.2 percent on the day.
The kiwi was under pressure as a rapidly slowing economy will
force New Zealand's central bank to start cutting interest rates
aggressively from September, a Reuters poll of analysts showed on
Thursday. []
But the Australian dollar <AUD=D4> bounced after jobs figures
for April beat all expectations, pointing to strength in the
labour market even as other parts of the economy cool. The Aussie
rose as high as $0.9435 before slipping to $0.9405, little
changed. []
The drop in the single European currency dragged other
high-yielding currencies lower against the yen.
The euro fell 1 percent on the day versus the yen to around
159.60 yen <EURJPY=R>, with traders saying the yen could gain
against higher-yielding currencies as carry trades face
profit-taking after recent gains and as stocks were sluggish.
The kiwi fell 1.5 percent against the yen to 80.62 yen
<NZDJPY=R>, while the Aussie shed 0.3 percent to 98.17 yen
<AUDJPY=R>.
The dollar was confined to narrow ranges against the yen,
supported by solid U.S. productivity data but capped by exporter
selling. The yen's strength against higher-yielding currencies
helped drag the dollar down 0.3 percent to 104.38 yen <JPY=>.
(Additional reporting by Tetsushi Kajimoto; Editing by Chris
Gallagher)
