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Recession fear caused US rate cut

Some Fed members wanted a smaller interest rate cut
The US Federal Reserve cut interest rates by 0.75% last month because some of its members feared a "prolonged and severe" economic downturn.

The minutes of its March meeting, when rates were cut to 2.25%, showed that policymakers were concerned about the housing slowdown and credit crisis.

Just watched the interview myself. He's pretty much said interest rates are going to be cut.

But the BoE is independent of course, so surely they won't be influenced by El Gordo will they???

Choccie: Gordo always sounds to me like Darth Vader. He obviously had presentational training as he become PM to try to cure hime of that weird jaw movement when he pauses for breath. It seems to be returning.

The other creepy thing is seeing him smile. It just ain't natural, like a dog walking on two legs.

08:30 *UK FEB INDUSTRIAL OUTPUT UP MONTHLY 0.3 PCT VS 0.1 PCT DECLINE IN JAN
08:30 *UK FEB MANUFACTURING OUTPUT UP MONTHLY 0.4 PCT VS UPWARDLY REVISED 0.5 IN JAN
08:30 *UK MANUFACTURING EXPORTS ACCOUNT FOR 29 PCT OF FEB OUTPUT, SEVEN-YEAR HIGH

LONDON (Dow Jones)--The dollar has broadly held steady in European hours, despite poor housing data and a gloomy economic assessment from the U.S. Federal Reserve Tuesday.

This relative stability in the currency partly reflects moves by Citigroup Inc. to offload some of its troubled debt - a development that has boosted risk appetite.

But it also offers a hint that dollar selling could be running out of momentum.

"In the short term, we believe that dollar selling attributable to cyclical weakness and credit market concerns may have reached a peak," said Geoffrey Yu, a currencies strategist at UBS in Zurich.

"Although significant challenges remain for the U.S. economy, and other credit-linked markets continue to show significant stress, the market is now scrutinizing cyclical weakness in other (major economies) and modifying currency exposure accordingly," Yu added.

UBS advises selling the euro against the dollar, and predicts that the euro will be around $1.47 in three months, from around $1.57 now.

There have been a number of false starts for a dollar rebound over the past few weeks, and some other analysts remain skeptical that the dollar can reclaim lost ground just yet. Nonetheless, the euro has been tied at around the $1.57 level in European hours, while the dollar has stuck to its recent range against the yen, hovering between Y102.25 and Y102.75.

Overnight, the Bank of Japan met expectations by keeping interest rates on hold at 0.5%. Also as expected, the Japanese parliament approved the appointment of Masaaki Shirakawa as the new BOJ governor, although it rejected the nomination of Hiroshi Watanabe as deputy governor.

Analysts see little chance of a shift in Japanese monetary policy for now. Although Shirakawa is expected to press for higher interest rates over the long term, global growth fears are expected to weigh on rates for now. The new appointment had no clear currency impact, but it does come as a welcome relief to markets, as the BOJ had been lacking a leader since March.

On the data front, sterling grabbed the market's attention for the second consecutive day. Tuesday, the pound fell sharply after data from lender Halifax revealed a surprisingly large 2.5% dip in house prices in March.

Then overnight, further U.K. data revealed the lowest levels of consumer confidence since May 2004, with the Nationwide index falling one point to 77 in March from February.

With a Bank of England interest rate decision looming Thursday, the currency remained under pressure at the start of European trading, and traders reported some flows in the euro at a shade over GBP0.80.

But the pound later strengthened slightly after data showed manufacturing output rose 0.4% in February, taking the annual rise to 1.9%. Economists had expected the monthly rise to be closer to 0.1%, and the annual figure to reach 1.6%.

The euro retreated to GBP0.7970 as sterling popped higher, while the pound edged higher against the dollar too, moving to a session high of $1.9724 from around $1.9685 immediately before the data were released.

In other data releases, figures from the European Union's statistics agency Eurostat showed that economic growth in the euro zone was in line with earlier estimates and with market expectations, at 0.4% in the fourth quarter, from 0.7% in the third quarter.

This slower growth reflects weaker consumer and government spending. But as the data had been widely expected, the impact was muted.

Looking ahead, Federal Reserve Chairman Ben Bernanke speaks on financial literacy at 1330 GMT, while Fed Governor Randall Kroszner will testify to Congress on the economic, mortgage and housing rescue bill at 1400 GMT.

Dallas Fed President Richard Fisher will speak about the economy at 1730 GMT.

Broadly, trading remains muted as traders prepare for interest rate decisions from the Bank of England and the European Central Bank Thursday. At 0956 GMT, the euro was trading slightly higher at $1.5729, from $1.5710 late in New York Tuesday, according to EBS. It was a touch lower against the yen, at Y160.97 from Y161.08.

The dollar was at Y102.35 from Y102.56, while the pound was lower at $1.9698 from $1.9704.

Alistair Darling has defended his forecasts for economic growth despite expectations that the International Monetary Fund will cut predictions for the UK this year to 1.6% later today.

The IMF figure contrasts with the Chancellor's own expectations of 2% growth in 2008, but Darling said the downgrade for the UK had been less severe than for other major economies.

"The IMF has downgraded every country's growth forecasts," he told Radio 4's Today Programme. "It's not surprising. We must not be complacent about what is happening at the moment."

Darling stood by predictions made in his debut Budget speech last month that Britain's economy would grow by between 1.75% and 2.25% this year and by 2.25-2.75% in 2009.

"Britain is better placed than other economies to withstand a slowdown in the global economy," he said.

"I remain optimistic that, provided we stick to the course we have set out and that we keep doing the right things, the economy will continue to grow," he added today.

The IMF is also said to have reduced forecasts for world economic expansion from the 4.1% announced in January to just 3.7%, the slowest pace since 2002.

Last July, the fund said it though the global economy would grow by 5.2% this year despite the US credit crunch.

The US is expected to grow just 0.5% in 2008, down sharply from the 1.5% predicted at the start of the year, followed by 0.6% growth next year.

Expectations for growth in the 15-nation eurozone have been lowered to 1.3% from 1.6%, which the IMF said affords some easing of the European Central Bank's policy stance.

Yesterday, the IMF warned that financial institutions' losses due to the credit crunch could approach $1 trillion.

The tightening of credit markets that began with the collapse of US sub-prime mortgages, but spread to other lending markets and countries, has already resulted in 193bn in losses, the IMF said, adding that this figure could potentially reach $945bn.

There was also gloomy news on housing Tuesday, with UK house prices down 2.5% in March, the biggest monthly fall since September 1992, according to mortgage lender Halifax.

I notice that Libor's off a bit more since yesterday. That might just give Mervyn a bit more to think about, what with the better than expected production numbers earlier.

STERLING

TOM/NEXT 5.10 - 5.20

7 DAY 5.10 - 5.25

1 MTH 5.52 - 5.60

3 MTHS 5.85 - 5.93

6 MTHS 5.82 - 5.90

12 MTHS 5.70 - 5.80

Seymour,

Especially for you, seeing as you enjoyed Mark Mitchell's acid-tongue comment yesterday.

:o)

11:42 GMT, Apr 09 2008 | Posted by Mark Mitchell from London
UAE FX committee, surprise surprise, recommends sticking with Dollar peg


I would like to have been a member of that committee working tirelessly night and day for weeks just to do what the Saudi's tell them to do.

Erm, thanks Hils but I'm not really sure what it means - I've got some pegs on the washing line but and some in the garden shed, I could bring them down to London if it would help the committee and I get paid to be a member ;-)

Seymour,

The article above was from the same journo who penned the sarcastic article about Gordon Brown running scared yesterday.

Along with a couple of cronies in Boston and Sydney, he pens no-nonsense commentary on news stories throughout the trading day, and he's great at producing cynical one-liners.

My warped sense of humour often leaves me chuckling at his comments.

Double post

Is that the Alphaville blog Hils? PS my soh is warped as well - gets me into lots of trouble!!

I was long cable this morning but got stopped out. Grrr.

No, Seymour, they're Thomson journos.

Thanks Hils

EUR USD at turning point or just ready to keep going up? What a lovely run up yesterday afternoon - shame I missed it, haven't time to post a chart.

Back after school holidays and a short break away. Longest time I've not done any trading for ages. Need to start accumulating a pip or two. Hope everyone's had a successful few weeks trading.

I see that EUR/USD back up near its all time highs again. Not looking to short though, who knows how high it will go as no real sign of weakening.

I'm just looking at the charts to see if there are any other opportunities that suite me today.

That header looks interesting Hils, presume the timescales are US?

See the EUR USD couldn't keep it up - for now.

I'm just playing with it now, Seymour, but it's not really working yet as I'd hoped it would.

I'll leave it like that tonight and come back to it tomorrow.

It'll be interesting to receive some feedback in the meantime.

OK Hils, I can see how it works pretty much immediately. I like the idea as I can't always run my charting prog behind everything else I have running, or may be on a different PC. You never rest do you :-)

It was quite good having multiple currencies running like you did at one point but I also like the larger single chart. They are certainly an improvement on the small charts you had there previously. Would be interested in everyone else's opinion.

What a great idea, Hil.
Been having a play already - I even logged off and on to the thread to see what would happen (well, I didn't want to think I might break it).
Say bye bye to those other charts :)