Euro eases on lower rate hike expectations

TOKYO, June 10, 2011 (AFP) - The euro fell against the dollar in Asia on Friday as the European Central Bank's tame inflation outlook dented market expectations for future rate hikes, dealers said.

The euro fell to $1.4493 in Tokyo morning trading from $1.4509 in New York late Thursday. The European common currency also retreated to 116.19 yen from 116.42 yen.

The dollar fetched 80.16 yen, down from 80.31 yen.

The European Central Bank on Thursday kept its main interest rate at 1.25 percent.

ECB president Jean-Claude Trichet said the bank's position on inflation was one of "strong vigilance" -- usually interpreted to mean future tightening of monetary policy in the eurozone.

While Trichet's remark was in line with market expectations, the euro came under pressure after the meeting.

"Trichet indicated a rate hike in July, but the ECB was rather tame with its longer-term prospect for inflation," said Teppei Ino, analyst at the Bank of Tokyo-Mitsubishi UFJ.

Trichet's remarks on inflation indicated that the ECB would not raise rates many times in the months ahead, running contrary to some market speculation, Nomura Trust and Banking's senior dealer Hideki Amikura told Dow Jones Newswires.

The current weakness of the euro is because "we have no factors that justify the euro-buying anymore" as investors have now fully priced in an ECB rate hike in July, Amikura said.

The dollar was weighed by selling from Japanese exporters after getting a boost Thursday when data showed the US trade deficit shrank sharply in April, with exports hitting a record and imports falling.

The US Commerce Department reported the trade deficit in goods and services fell to a seasonally adjusted $43.7 billion from $46.8 billion in March. That was the smallest gap in the year to date.

Japanese exporters are again showing interest in selling the dollar after going quiet on currency markets since the March earthquake, said Osamu Takashima, chief FX strategist at Citibank Japan.

The dollar was mixed against regional Asian currencies, falling to Sg$1.2304 from 1.2306 on Thursday, to 8,519.50 Indonesian rupiah from 8,525.00 and to 30.39 Thai baht from 30.43.

The unit edged up to 1,082.43 Korean won from 1,082.40, to Tw$28.74 from 28.73, and to 43.28 Philippine pesos from 43.26.

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