The euro slumped to a five-month low against the dollar as
traders pared bets the European Central Bank will raise interest rates
as the economy slows.
The euro also fell to a three-week low versus the yen after ECB
President Jean-Claude Trichet said economic growth will be
``particularly weak'' through the third quarter and policy makers kept
the benchmark rate unchanged yesterday. The New Zealand and Australian
dollars led losses among the most-traded currencies on speculation
central banks will cut borrowing costs. The U.K. pound sank to the weakest in 17 months against the dollar as Royal Bank of Scotland Group Plc posted its first loss in 40 years.
Trichet said yesterday he has ``no bias'' or ``pre- commitment'' toward
future rate movements after the central bank left the main refinancing
rate at 4.25 percent. He told reporters in Frankfurt that while
inflation remains a threat, risks to economic growth are
``materializing.''
Traders pared bets the ECB will lift rates a second time this year
after increasing its main rate by a quarter-point to 4.25 percent last
month. The implied yield on the December interest rate futures, an
indication of expectations, has retreated 21 basis points from the
previous meeting, to 4.94 percent today.
``We do not expect a significant recovery in the euro from current
levels,'' Ashley Davies, a currency strategist in Singapore at UBS AG,
the world's second-largest foreign-exchange trader, wrote in a research
note today. ``Trichet delivered fairly standard comments, which were
interpreted in a dovish fashion.''
``Oil prices have turned out to be much more supportive of the dollar
than I expected,'' said Masanobu Ishikawa, general manager of foreign
exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest
currency broker. ``It does temporarily relieve some concern that the
U.S. economy will weaken further. This is a plus for sentiment.''
Losses in the yen against the dollar may accelerate on
speculation a slowing economy will prevent the Bank of Japan from
raising interest rates from 0.5 percent, the lowest among
industrialized economies.