The single European currency rebounded from the lowest level in a week against the dollar as Europe's Dow Jones Stoxx 600 Index rose for a sixth day and the cost of borrowing euros for three months dropped to the lowest since March. The U.K. pound fell for a third day as a measure of construction activity in Britain slid in October. The European Central Bank and Bank of England meet to decide interest rates in two days' time.
``Risk aversion is a bit lower and that's allowed the euro to gain some ground,'' said Antje Praefcke, a currency strategist in Frankfurt at Commerzbank AG. ``We're heavily dependent on the stock markets and people don't want to trade too heavily before the ECB's decision.''
The pound dropped per euro. It has declined 9 percent against the euro and 20 percent versus the dollar this year amid evidence Britain's economy is entering its first recession since the early 1990s. The Bank of England will cut the main interest rate to 4 percent from 4.5 percent on Nov. 6.
Gains by the euro may be limited before the ECB's rate decision Nov. 6. The central bank will trim its benchmark rate by half a percentage point to 3.25 percent, according to a Bloomberg survey of economists.
The euro-area economy probably entered a recession this year and will stagnate in 2009, the European Commission said yesterday. European manufacturing contracted at a record pace in October and faster than initially estimated, other data showed.
``The trend is for the euro to weaken,'' said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan's second-largest publicly traded lender. ``Recession has reared its head in Europe, and that's fairly negative for sentiment.''
The Federal Reserve reduced its target rate for overnight bank loans a half-percentage point to 1 percent on Oct. 29. Futures on the Chicago Board of Trade show a 55 percent chance it will cut it again, to 0.5 percent, next month.
The ICE's Dollar Index, which tracks the greenback versus the currencies of six major U.S. trading partners, was at 85.69, after touching 87.88 on Oct. 28, the highest level since April 2006. It dropped to 70.70 in March, the lowest level this year.
EUR/USD the pair has completely blocked morning decrease in area $1,2520. At present the rate bargains in area $1,2845, is not far from a yesterday's high on $1,2857.