The euro fell against the dollar and the
yen on growing speculation the European Central Bank will slash
interest rates today and signal more cuts are needed to stave off an
economic slump.
The 15-nation currency declined in five of the past six days. The ECB
may lower its main refinancing rate an unprecedented 1 percentage point
today, according to Citigroup Inc. Most economists surveyed by
Bloomberg see a half-percentage point cut to 3.25 percent.
``The market is pretty certain we're going to get 50 basis points,''
said Jeremy Stretch, senior strategist in London at Rabobank
International, the third-largest Dutch banker. ``I suspect the
accompanying rhetoric will be dovish and they'll continue to talk of
downside risks to growth.''
The euro-region economy contracted 0.3 percent in the three months
through September and may shrink by the same amount in the fourth
quarter, according to a Bloomberg News survey.
A 100 basis-point reduction by the ECB would provide an opportunity to
buy the euro, according to Citigroup, the world's fourth-largest
currency trader.
Such a cut ``would be unprecedented from the ECB, which has never moved
more than 50 basis points in one step,'' analysts including New
York-based Tom Fitzpatrick wrote in a research note yesterday. ``An
aggressive rate cut is unlikely to mark a sustained decline in the euro
and, tactically, an intraday dip should represent an attractive buying
opportunity.''
The ECB will announce its decision at 12:45 GMT and the bank's
president, Jean-Claude Trichet, will hold a press conference 45 minutes
later. The ECB lowered its benchmark rate to 3.75 percent on Oct. 8,
joining the Federal Reserve, the Bank of England, the Bank of Canada
and the Swiss National Bank in coordinated reductions. Benchmark rates
are 1 percent in the U.S. and 0.3 percent in Japan.
``The euro is likely to ease on the decision,'' analysts led by Ulrich
Leuchtmann, head of foreign-exchange research in Frankfurt at
Commerzbank AG, wrote in a client note. A cut of more than half a point
``would substantially reduce the yield spread to the dollar.''
The pound declined for a second day against the dollar as traders bet
that U.K. policy makers will lower their benchmark interest rate by
three-quarters of a percentage point to 3.75%. Fifteen of 60 economists
in a Bloomberg survey say the BOE will reduce rates by that amount or
more, with the rest predicting a half-point cut. The decision will be
announced at 1200GMT today in London.
Gains in the dollar may be limited before economic data tomorrow. U.S.
payrolls fell by 200,000 last month and the unemployment rate rose to a
five-year high of 6.3 percent, according to the median forecast of 75
economists surveyed by Bloomberg News. The U.S. economy contracted 0.3
percent in the third quarter, the biggest decline since 2001.