Sell Euro, Pound Versus Yen as Europe Weak, Morgan Stanley Says

By Candice Zachariahs

Oct. 3 (Bloomberg) -- Investors should sell the euro and the British pound and buy Japanese yen after the European Central Bank signaled it may lower borrowing costs for the first time in five years, Morgan Stanley said.

European Central Bank President Jean-Claude Trichet indicated yesterday the bank is poised to cut interest rates from a seven-year high of 4.25 percent. The U.K. economy grew at the weakest annual pace since 1992 in the second quarter, prompting Barclays Plc to forecast a quarter-point rate cut by the Bank of England to 4.75 percent when it meets Oct. 9.

``Growth prospects in the Eurozone are dimming quickly and may force the ECB's easing hand sooner rather than later,'' wrote New York-based Sophia Drossos and Yilin Nie, strategists at Morgan Stanley, in a research note dated Oct. 2.

Investors should sell the euro at 145 yen with a target of 135 yen. They should exit the trade if Japan's currency weakens to 150 yen per euro. The euro weakened against the yen for the sixth day, trading at 145.3 yen at 8:27 a.m. in Tokyo, from 145.6 yen yesterday.

Morgan Stanley also advised investors to sell Britain's pound at 185 yen with a target of 165 yen. They should exit the trade if the yen falls to 190.50 per British pound. The pound bought 185.7 yen, from 185.8 yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net