| NEW YORK, March 28
NEW YORK, March 28 The euro in recent
days has come tantalizingly close to hitting $1.40, an
attention-getting level that may push Europe's central bankers
to loosen monetary policy, according to foreign exchange
strategists and traders.
Just this month, before a rally in the dollar, the currency
shared by 18 countries touched a high of $1.3967 on March 13.
Some profit taking and improved U.S. economic figures stemmed
the rally in the single currency, but strategists believe it's
only a matter of time before the euro breaches $1.40, a level it
hasn't seen since 2011.
"At $1.40, we might see some talk from European central
banks about the euro getting ahead of itself. You might see a
pullback," said David Bradley, director of foreign exchange
trading at Scotia Capital in Toronto.
A $1.40 euro would hurt the region's businesses and
employers by making imports cheaper and exports pricier. The
higher euro would undercut efforts policymakers have made to
lower rates as a way to boost tepid economic growth and deflect
In February, euro zone annual inflation dropped to a level
that last November had triggered a surprise cut in interest
rates. February's year-on-year inflation rate was 0.7 percent
against 0.8 percent in January and matched the lowest posted in
Europe's central bankers have said they stand ready to make
monetary policy shifts if the euro zone's inflation rate should
fall short of 1 percent this year, 1.3 percent in 2015 and 1.5
percent in 2016.
Central bankers already increasingly talk about sluggish
lending and other burdens aggravated by a strengthening euro,
which rose 4.5 percent against the dollar during 2013, according
to Nick Bennenbroek, head of currency strategy at Wells Fargo
Securities in New York.
"The strength of the euro has become increasingly relevant
for ECB policymakers," said Bennenbroek. "If we see a return to
$1.40 or beyond, it may possibly elicit some sort of policy
European central bankers are already cautioning against a
strong euro, with European Central Bank President Mario Draghi
on Tuesday saying the ECB was tracking currency markets.
"Draghi has shown the ECB is tired of euro appreciation. But
after the jawboning, the market wants to see something
concrete," said Joe Manimbo, senior market analyst at Western
Union Business Solutions.
Possible ECB steps include interest rate cuts or curtailing
the bank's weekly "sterilization" process worth about $175
billion. By downshifting or suspending the four-year-old
sterilization program, put in place to neutralize the effects of
buying bonds issued by Greece and other struggling economies,
the ECB would encourage business by enlarging the region's money
supply and lowering short-term interest rates.
Currency traders, too, see $1.40 as a possible trigger, with
selling of the euro almost sure to accelerate as the euro nears
that level, according to Bradley. Some traders see resistance at
the $1.3967 peak last touched on March 13.
"A lot of people have been targeting that level," Bradley
said. "As you approach a key level, a lot of players sell short
of that. It generally doesn't break the first time."
(Reporting by Michael Connor; Editing by Chizu Nomiyama)