WORL FOREX : EURO RECOVERS FROM 1--WK LOW AFTER ECB REMARKS

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* JUNE 4, 2009, 10:39 A.M. ET

WORLD FOREX: Euro Recovers From 1-Wk Low After ECB Remarks

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By Riva Froymovich
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--The euro has recovered from a one-week low versus the dollar Thursday morning, but is trading inside a very narrow range.

Mixed signals in remarks by European Central Bank President Jean Claude Trichet, after the bank left interest rates unchanged at 1.0%, have left the common currency little changed on the day.

Trichet stressed that euro zone policy makers are already thinking about exit strategies from easing mode. He also said that the ECB isn't considering expanding its EUR60 billion covered bond purchase program, or any other non-standard easing measures.

This helped to boost the common currency against the U.S. unit, as the Federal Reserve is seen as possibly expanding its Treasury purchases.

However, those gains have been shaky, with the euro sometimes slipping on the day. Trichet remained very cautious on the euro zone's growth outlook. He also spoke on the importance of a strong dollar policy in the U.S. in response to a question on the euro's three-month rally.

The greenback rebounded from a 2009 low Wednesday on the re-emergence of caution in the market following weeks of rallying for riskier assets. U.S. stocks are falling again Thursday.

However, trading is overall inside a narrow range ahead of the much awaited May U.S. payrolls report to be released Friday.

Thursday morning in New York, the euro was at $1.4163 from $1.4145 late Wednesday. The dollar was at Y96.19 from Y95.97, according to EBS. The euro was at Y136.25 from Y135.73, and the U.K. pound was at $1.6170 from $1.6283. The dollar was at CHF1.0695 from CHF1.0715 Wednesday.

Earlier, the euro and U.K. pound fell to intraday lows against the dollar.

The Bank of England also voted to keep rates unchanged, and while the central banks' decisions were widely expected, traders were taking every opportunity to liquidate some of the riskier positions accumulated over the past weeks on the conviction that the market may have gotten too far ahead of itself.

NOTE: the bank of england also voted to keep rates unchanges, traders werev talking every opportunity to liquidate some of the riskier positions accumulated over the past week.

The sell-off also came amid chatter that U.K. Prime Minister Gordon Brown might resign, which has since been denied by the government.

His exit would be seen as a blow to economic stimulus policies, and result in a further unwind of risk, said Neil Jones, head of hedge-fund sales at Mizuho Corporate Bank in London.

The euro had fallen as low as $1.4070, while the pound declined to $1.6084.

Emerging markets in Europe were also shaky Thursday. Assets continued to feel the fallout from Latvia's escalating financial crisis, particularly the Hungarian forint and Polish zloty.

Signs that Latvia's economic woes are worsening have prompted speculation that authorities could be preparing to drop their currency's peg to the euro, despite repeated official denials.

The Latvian central bank Thursday said it will maintain the stability of the national currency until the euro can be adopted.

A European Commission spokesman said earlier Thursday that European Union and International Monetary Fund officials are currently in Latvia "assessing the situation."

Bank-lending rates in Latvia rose to record highs Thursday, a new sign of a growing liquidity shortage.

Swedish banks, which are heavily exposed in the Baltic region, saw their stock prices recover heavy losses Thursday after the Swedish government pledged support to any Swedish banks running into trouble. But the Swedish krona remains near the low end of its recent trading ranges against the dollar and euro after falling sharply Wednesday.

Sweden's finance minister said Thursday that Latvia's economic situation is "very worrisome" and it is now vital that the Baltic country's government doesn't let its budget deficit spiral out of control.

Elsewhere, Russia's central bank lowered key interest rates Thursday by 50 basis points, the third cut in six weeks, in an effort to revive Russia's shrinking economy. Many analysts expected the move.

Canada Morning


The Canadian dollar is higher in quiet trading Thursday morning, and did not react significantly to the Bank of Canada's decision to keep its key interest rate unchanged at 0.25%.

The BOC said financial conditions and commodity prices have improved significantly in recent weeks, and consumer and business confidence have recovered modestly.

However, it warned that if "the unprecedentedly rapid rise" in the Canadian dollar - due to a combination of higher commodity prices and a generally weaker U.S. currency - persists, "it could fully offset these positive factors."

The BOC said it didn't engage in any quantitative easing measures, but added that it retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework outlined in the April policy report.

The U.S. dollar had reached a one-week high of C$1.1157 in earlier trade, but had slumped to the C$1.1060-area before the bank's statement.

Recently, the U.S. dollar was trading at C$1.1068 from C$1.1102 late Wednesday.



-By Riva Froymovich, Dow Jones Newswires; 201 938-5063; riva.froymovich@dowjones.com



(Don Curren in Toronto and Katie Martin and Clare Connaghan in London contributed to this report.)





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