Euro slips under $1.56 after record-breaking week

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LONDON: The European single currency fell further on Friday from this week s record dollar high as dealers continued to focus on soft economic data in the eurozone, analysts said.

In early European trading, the euro sank to $1.5589, from $1.5685 in New York late on Thursday. It had hit a historic peak of $1.6019 on Tuesday.

Against the Japanese currency on Friday, the dollar rose to 104.63 yen from 104.22.

Currency speculators drove the euro lower in response to a much weaker than expected German business survey on Thursday.

The Ifo research institute said its April business climate index for Germany fell to 102.4 from 104.8 in March, well below forecasts of a decline to 104.3.

We have repeatedly warned that the weakening of the dollar will be interrupted by sharp counter moves from time to time and this is what happened in the last couple of days, said Commerzbank analyst Antje Praefcke.

Surprisingly soft economic data out of the eurozone have been matched with US data that did not spoil current market optimism that the worst in the US is over and the US economy will do better in a not too distant future, allowing the Fed to signal a rate cut pause next week.

Not even yesterday s horrible (US) new home sales data could jeopardize that view.

ECB President Jean-Claude Trichet said Thursday that the euro s surge earlier this week to record levels could hurt the European economy.

The soft data rekindled talk of a possible interest rate cut by the European Central Bank (ECB) in the coming months, but analysts said that stubborn inflation would make it hard for the ECB to loosen monetary policy.

The euro s gains were capped by speculation that the US central bank might soon halt its series of interest rate cuts, possibly after one more 25 basis point reduction next week.

Given the recent stable movement on the global financial markets, receding concerns about the credit crunch and surging commodity prices, there is an emerging view that the Federal Reserve Board may end the rate-cutting cycle after one more rate cut, Tokai Tokyo Securities chief economist Mitsuru Saito said.

Confidence has been recovering on world stock markets recently as investors hope for a rebound in US economic growth later this year despite massive losses by major US banks on mortgage-backed securities gone sour.

In London on Friday, the euro changed hands at $1.5589 against $1.5685 late on Thursday, at 162.93 yen (163.50), 0.7887 pounds (0.7943) and 1.6207 Swiss francs (1.6237).

The dollar stood at 104.63 yen (104.22) and 1.0398 Swiss francs (1.0349).

The pound was at $1.9763 (1.9744).

On the London Bullion Market, the price of gold firmed to $882 per ounce from $895.50 late on Thursday. -AFP

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