(Recasts with euro peaks, changes byline)
By Toni Vorobyova
LONDON, April 10 (Reuters) - The euro hit record highs
versus the dollar and sterling on Thursday on expectations the
European Central Bank will signal that, in contrast to UK and
U.S. counterparts, it is not ready to cut rates any time soon.
The Bank of England administered its third 25 basis point
cut in five months, to 5 percent on Thursday while the ECB left
rates on hold at 4 percent. Both decisions were as expected.
ECB president Jean-Claude Trichet is seen stressing upside
risks to inflation as well as downside ones to growth at his
post-decision news conference from 1230 GMT.
In contrast the BoE and the Federal Reserve are more worried
about growth, with the Fed slashing policy by 3 percent since
September to 2.25 percent and seen moving again this month.
As well as prospects for further unfavourable moves in yield
differentials, the dollar came under pressure from a sell off in
equity markets fuelled by concerns over the health of the U.S.
banking sector.
"There is still uncertainty regarding (U.S.) economic
activity and the Fed is likely to cut rates by 50 basis points
at the end of the month, and today we have the decoupling of the
monetary policy between the Fed and the BoE on the one hand, and
the ECB on the other hand," said Carole Laulhere, currency
strategist at Societe Generale.
"We hope he (Trichet) will stay quite hawkish. We are long
euro/dollars with a target of $1.61," she added.
The euro rose as high as $1.5912 according to Reuters data,
bringing its gains for 2008 so far to 9 percent <EUR=>.
By 1146 GMT it had retreated a little to $1.5886, showing
little reaction to the ECB's on-hold decision.
The euro also carved out similarly impressive year-to-date
gains versus sterling, climbing to 80.29 pence <EURGBP=>.
EURO: $1.60 NEXT?
The Norwegian crown strengthened beyond 5 per dollar for the
first time since early 1980s <NOK=>, bolstered by broad dollar
weakness as well as by oil prices, which held near Wednesday's
record highs <CLc1>.
The inflationary impact of high oil prices also boosted the
case for a hawkish, inflation-fighting message from the ECB.
"We can hardly expect anything from Trichet but another
round of jawboning on inflation risks, particularly with oil
spiking to new highs," Saxo Bank said in a research note, adding
that a hawkish news conference could send the euro above $1.60.
The yen benefited from a broad pick up in Asian currencies
after the Monetary Authority of Singapore re-centred the
Singapore dollar's trade-weighted band pushing up the currency
by as much as 1.4 percent. <SGD=>
The move dragged the dollar below the psychologically
important 7.0 Chinese yuan level <CNY=CFXS>, while the yen rose
1.6 percent on the day to 100.17 per dollar <JPY=>.
The euro fell 1.2 percent to 159.11 yen <EURJPY=>.
A fall in equity markets also helped the low-yielding
Japanese currency as well as the safe-haven Swiss franc <CHF=>.
European shares were down 1.3 percent <>, as
financials were hurt by news that Lehman Brothers had liquidated
three investment funds hit by "market disruptions"
[].
Investors were also cautious before a meeting of the Group
of Seven economic powers later this week which will try to
tackle the global financial crisis.
(Editing by Ron Askew)
