* Euro <EUR=> slips on two-notch Ireland cut by Moody's
* Rate differentials, sovereign buying offer support
* Euro brushes off higher-than-expected euro zone CPI data
(Updates, adds details, quote)
By Anirban Nag and Naomi Tajitsu
LONDON, April 15 (Reuters) - The euro fell on Friday after
Moody's cut Ireland's rating to just above 'junk' status, keeping
the single currency zone's debt problems in the limelight,
though losses were likely to be offset by bids from sovereign
buyers.
Also helping cap losses was the diverging outlook for
monetary policy in Europe and the United States. Several top
Federal Reserve officials have sounded relaxed about inflation,
bolstering the view the Fed is still some way from normalising
its ultra-loose monetary policy. []
The European Central Bank raised rates by 25 basis points
last week and investors are pricing in chances of two more rate
increases before the end of this year. <ECBWATCH>
"In the short term, interest rate differentials will still
be the key driver for the euro/dollar despite these downgrades
which have been priced in by the market," said Paul Robson,
currency strategist, at RBS Global Banking.
"The euro zone periphery is a key risk but unless ongoing
talk of recapitalisation of Spanish banks and Greek debt
restructuring come to a head, we will see rate differentials
support the euro."
Moody's cut Ireland's sovereign rating by two notches to
Baa3 and left the outlook negative, citing an expected
deterioration in the government's financial strength and a
weaker economic growth outlook. []
The euro slipped 0.2 percent on the day to $1.4460 <EUR=>,
well below a 15-month high of $1.4521 touched earlier this week.
Traders said Asian central banks had bids at $1.4415/20 and then
at $1.4385/90.
On the upside, an option barrier lies at $1.4525 and there
are stops above that level, going up to $1.4550, traders said.
The euro showed little reaction to euro zone inflation
numbers which surprised on the upside, backing views that the
ECB will continue to raise rates in coming months.
[]
The dollar slipped 0.3 percent to 83.20 yen <JPY=>, but
losses were limited, with traders saying Japanese life insurance
companies have been buying the dollar and the euro at its lows
with stops in the dollar/yen pair building below 83 yen.
The dollar was little changed versus a currency basket
<.DXY>.
PERIPHERAL DEBT PROBLEMS
Market players said the euro could find the going tough
above $1.45 <EUR=> given concern about sovereign debt problems,
which have escalated this week as concerns about a possible
Greek restructuring gather pace. []
Some fund managers say an ongoing tightening in overall euro
zone monetary conditions, through interest rate rises and a
higher exchange rate, could stifle the economic recovery of
countries in the region which were saddled with massive debts.
Ken Dickson, investment director of currencies at Standard
Life Investments in Edinburgh, said the euro was "just too high"
in light of this issue, which would haunt the single currency in
the longer term.
Still, the market was focused on whether Spain will need a
financial lifeline rather than addressing the impact of broader
fiscal issues in the region, he said, adding that Spain's
avoidance of a bailout for now was helping to bolster the euro.
"We're in a sell zone for the euro, but we're worried that
because the market is looking at Spain and not the others we
could extend the period where the euro appreciates and it could
remain overvalued for longer," Dickson said.
"Even though we have stronger views in the longer term, our
concerns about how far things can stretch in the near term have
meant that funds with shorter investment horizons have kept
positions light."
Standard Life manages 156.9 billion pounds ($256.7 billion)
in assets.
Other asset managers took a different view of the euro, with
Japan's Kokusai Asset Management saying it plans to increase the
weighting of euro-denominated bonds in its $33 billion bond
fund, the world's second largest, due to a solid outlook for
euro zone economies. [].
Investors awaited a meeting of Group of 20 leaders in
Washington later in the day, which was expected to address
imbalances between export-reliant Asian countries led by China
and debt-laden Western countries led by the United States.
($1=.6111 Pound)
(Editing by Susan Fenton, John Stonestreet)
