Forex - Dollar, euro range-bound amid light data calendar

Major currencies remained in narrow trading ranges, with a dearth of data meaning focus was on global currency imbalances and credit worries.

The dollar is hovering around a cent off its all-time low against the euro and its weakness is causing some friction within major exporters such as China.

Chinese Premier Wen Jiabao pledged today to resolve trade imbalances after the country's surplus hit a record high in October, and to work to let the yuan move more freely. A stronger yuan would make Chinese exports more expensive overseas.

Wen said China will work to "increase (the currency's) flexibility and gradually make the yuan convertible under the capital account".

However European Central Bank president Jean Claude Trichet, speaking at the meeting of central bankers in Cape Town today, refused to make any specific comments on the strong euro. Instead he reiterated previous comments that "excess volatility in currency markets is undesirable".

EU economic commissioner Joaquin Almunia made similar comments later this afternoon saying that the euro's recent moves may be brutal but fundamentals are the ultimate factor in respect to free market volatility.

"Dealers in Europe see little new in the latest rhetoric from the EU," said Matthew Foster-Smith at Thomson IFR Markets, explaining why the dollar remained stable against the euro.

Later this week, attention should switch back to fundamentals. The minutes to the US Federal Reserve Oct 31 rate decision come tomorrow and investors will be looking for any signal that borrowing rates will come down again in December, following a quarter-point cut at the Oct 31 meeting.

"With the market relatively confident about the prospects for a rate cut in December, the risk is these expectations will be disappointed somewhat, which would be positive for the dollar and negative for risky assets," said analysts at Barclays Capital.

The pound recovered slightly this afternoon after dropping this morning following more gloomy news on the UK housing market. The latest Rightmove house price survey showed the average asking price was 0.7 pct lower in November compared to October.

In the UK the main focus later this week will be on the Bank of England's minutes to its rate decision earlier this month. The central bank left rates unchanged at 5.75 pct but the subsequent, surprisingly dovish Inflation Report, along with weak housing indicators, has raised expectations for a cut in the coming months. Investors will be keen to see whether the Monetary Policy Committee was divided in its decision.

"The market will be looking at how dovish the Monetary Policy Committee board members have turned," said Alina Anishchanka, currency strategist at UBS, adding that the pound is likely to fall sharply on any hint of a December rate cut.

London 1623 GMT London 1248 GMT

US dollar

yen 110.07 down from 110.30

sfr 1.1160 down from 1.1185

Euro

usd 1.4665 up from 1.4636

yen 161.44 down from 161.47

sfr 1.6370 down from 1.6373

stg 0.7149 up from 0.7137

Sterling

usd 2.0507 up from 2.0500

yen 225.75 down from 226.13

sfr 2.2885 down from 2.2937

Australian dollar

usd 0.8863 down from 0.8900

stg 0.4321 down from 0.4341

yen 97.58 down from 98.19

rachel.armstrong@thomson.com

rar/ak

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Australia's central bank likely to hike interest rates further - HSBC

Australia's central bank may raise interest rates again early next year after it expressed concerns about inflationary pressures in a quarterly statement on monetary policy Monday, said HSBC Australia chief economist John Edwards.

"We continue to think one more tightening is highly likely, probably in February or March. Thereafter, it will depend on the pace of demand," Edwards said.

The Reserve Bank of Australia hiked its target cash rate 25 basis points to 6.75 percent last Wednesday following third-quarter consumer price data showing year-on-year underlying inflation at 3.0 percent, which was the top end of its target range.

In its statement, the RBA said underlying inflation is likely to rise to 3.25 percent in the final quarter but should ease to 3.0 percent by the end of 2008.

"As the RBA remarks today, somewhat lower outcomes could eventuate if the global economy slows more than expected," Edwards said.

But the central bank also noted it is possible at this stage of a long economic expansion that inflation will be more difficult to contain, particularly if domestic demand does not moderate.

"The market has taken it to be only mildly hawkish, but the Reserve Bank of Australia's quarterly statement on monetary policy has a nasty sting in the tail," Edwards said.

ECB Liebscher Sees No Stagflation Risk In Euro Zone

Mon, Nov 19 2007, 16:05 GMT
ECB Liebscher Sees No Stagflation Risk In Euro Zone

VIENNA -(Dow Jones)- European Central Bank Governing Council member Klaus Liebscher said Monday he sees no risk of stagflation in the euro zone, since economic growth seems solid.

Economists and analysts have voiced concerns that the U.S. economy could enter a phase of stagflation following the subprime credit crisis and the rise in the price of crude oil, but Liebscher dismissed a question on whether such a scenario could happen in the euro zone.

"How can we talk about stagflation when we see growth in the euro zone of around potential?" Liebscher said to reporters on the sidelines of a conference in Vienna.

Liebscher added, however, that "risks to economic growth are on the downside, and risks to price stability on the upside." He declined to flag whether the ECB governing council is looking to hike interest rates at its next meeting.

"We have no precommitment on whether to raise rates," Liebscher said, adding that "everything is data related."

Liebscher had said earlier in the day that the current exchange rate volatility has been included as a parameter in the ECB's interest rate decisions.

Monday afternoon Liebscher described the euro's rise against the dollar as a "sharp and substantial rise," but declined to comment on whether the euro's current strength reflects current fundamentals.