Euro Rises to Fresh Record on Hefty Rate Cut Expectations (Bloomberg) (14-01-2008)

Jan. 14 (Bloomberg) -- Traders are betting that the Fed will drastically cut rates, possibly even below European rates; this has resulted in yet another climb for the euro, which rose to a six-week high against the dollar.

There is a U.S. government report expected tomorrow that may show retail sales slowed down considerably last month, which could make the Federal Reserve cut its benchmark rate by a half percentage point.

The euro climbed to $1.4880, the strongest since Nov. 27, before trading at $1.4873 at 7:55 a.m. in London from $1.4776 late in New York on Jan. 11. The European currency also gained to 161.10 yen from 160.79 late last week. It rose to 75.735 pence per euro, from 75.523.

The euro has strengthened 6 percent against the currencies of the region's 24 biggest trading partners in the past five months alone. The gain reduces the competitiveness of European exports, which drove growth in the past two years.

Gains in Europe's single currency accelerated after it rose beyond $1.4825 and $1.4850, where orders to buy the currency were placed, said Lee Wai Tuck, a strategist at Forecast Pte Ltd. in Singapore. Traders sometimes place automatic instructions to limit losses in case bets go the wrong way. Trading volumes are below average because of a public holiday in Japan.

The dollar fell against 15 of the 16 most-active currencies as the Commerce Department will say retail sales were unchanged in December, according to a Bloomberg News survey of economists. The currency dropped to $1.9619 versus the British pound from $1.9566 and to 1.0938 against the Swiss franc from 1.1014. It also fell to 108.14 yen from 108.84 yen.

According to a technical analyst at Goldman Sachs, the quarterly stochastic oscillator chart signaled a “bearish crossover” for the pound versus the dollar at the end of 2007. The stochastic oscillator chart measures the closing price of a security relative to its highs and lows during a particular period to try to predict a gain or decline.

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