The euro fell to a 13-month low against the dollar and the weakest in
two years versus the yen after European Central Bank President
Jean-Claude Trichet said policy makers discussed cutting interest rates
as economic growth slows.
The European single currency dropped for the fourth day against the
dollar as Trichet said recent data suggests ``increased downside
risks'' to growth. The ECB kept its main rate at 4.25 percent today, a
seven-year high. The decision was predicted by all 58 economists
surveyed by Bloomberg.
``The euro is under pressure across the board,'' said Marcus Hettinger,
a Zurich-based currency strategist for Credit Suisse Group. ``The next
move in rates will be down. It's more a question of time.''
The euro has slid 5.6 percent this week, the biggest four-day drop since the currency's debut in 1999.
``The economic outlook is subject to increasing downside risks,''
mainly ``stemming from ongoing financial-market tensions,'' Trichet
said at a Frankfurt press conference following the decision. ``Upside
risks to price stability have diminished, but they have not
disappeared.''
Euro-region inflation was 3.6 percent last month, down from a 16-year
high of 4 percent in July. The ECB's inflation target is below 2
percent.
``Trichet has downplayed the upside inflation risks for the first time
in a long time,'' Dustin Reid, a senior currency strategist at ABN Amro
Holding NV in Chicago, wrote in an e-mailed report. The fact the ECB
discussed a rate-cut option today ``may give this move some further
legs,'' he said, adding the euro may trade as low as $1.3600 in the
coming week.
The dollar rose against 15 of the 16 most frequently traded currencies
as demand for dollar funding increased amid the seizure in the money
markets. The dollar also advanced after the Senate approved a $700
billion bank-rescue bill, bolstering expectations the U.S. will act
faster than Europe to address the credit squeeze.
``Looking at the euro against the dollar, it's like matching one dog
against another dog. Who's got the most fleas?'' said Alan Ruskin, head
of international currency strategy at RBS Greenwich Capital Markets in
Greenwich, Connecticut. ``Dollar fundamentals don't seem to matter.
It's extremely hard to fight this move into the dollar.''