20000127

Euro keeps foothold above parity to dollar

LONDON: The euro showed a reluctance to test its life lows below parity on Wednesday, but analysts said such a test could not be ruled out despite a promising economic outlook.

The European single currency was trading within half a cent of life lows around $0.9985 EUR it had tested on Tuesday sticking to a tight range.

"There has been big support down in the $0.9990 area and I'm sure the market will want to have another test down to see if that is still there," said Lee Ferridge, head of global currency strategy at Rabobank in London.

The euro failed to sustain a half cent rise to $1.0053 seen after National Bank of Belgium Governor and European Central Bank governing council member Guy Quaden told Reuters intervention was not ruled out "one day".

Euro/dollar softened after comments from German Finance Minister Hans Eichel played down any inflation threat.

Eichel said that the current exchange rate of the euro would pose a problem only if it fuelled domestic inflation. However, he said he saw no problem with inflation and noted that there were indications that the euro would strengthen.

Analysts said aside from the psychological factors regarding parity, relative growth prospects for the U.S. and the euro zone were a key factor for movements in euro/dollar.

"It is still the relative growth story in the U.S. and Europe and the way that is being reflected in relative yields and that is affecting the capital flow which is determining the foreign exchange rate," said Paul Lambert, senior currency strategist at Citibank in London.

He said levels in euro/dollar were in line with the spread between U.S. Treasury and German Bund yields. The 10-year T-note/Bund spread is at 130 basis points. currency market would also watch for further signs of resilience in U.S. stocks after the Dow Jones Industrial Average rose 0.20 percent on Tuesday following five sessions of losses. March S&P futures were up 2.9 points ahead of the opening of the U.S. market.

"The market's focus is on how the U.S. asset markets will react to this week's key U.S. economic data. So in the very near term, people are wary about pushing the euro/dollar in one particular direction," said a Japanese bank dealer in Tokyo.

Key U.S. data due out this week include the employment cost index (ECI) for the fourth quarter on Thursday and gross domestic product data for the same quarter on Friday.

Comments from U.S. Federal Reserve Chairman Alan Greenspan at his renomination hearings before the Senate Banking Committee at 1900 GMT will be closely watched, but analysts said the trend towards monetary tightening for the U.S. was already in place.

The yen was broadly steady against the dollar JPY and the euro EURJPY, despite a 1.14 percent rally in the Nikkei stock price average on Wednesday.

"There's a question about the sustainability of the recovery, possible backsliding by the government on the reform policy, and foreigners' reducing purchases of Japanese equity," said Neil MacKinnon, senior currency strategist at Merrill Lynch in London.

The Japanese government earlier reported the nation's retail sales fell 1.2 percent year-on-year in December.-Reuters