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The Euro falls against the Dollar on speculation the ECB will cut

Mon, Jan 12 2009, 10:01 GMT
by Benny Menashe

Finotec Group Inc.

The euro fell for a second day against the dollar as traders increased bets that the European Central Bank will cut interest rates to the lowest since 2005 this week to help pull the economy out of recession. The currency also dropped to a one-month low versus the yen as the International Monetary Fund’s Managing Director Dominique Strauss-Kahn said Europe is “underestimating the needs” of fiscal stimulus for the 16-nation region’s economy. “The recent run of soft euro-zone data has heightened expectations that the ECB will cut,” Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington, wrote in a research note today. “Concern about the euro-zone outlook will likely keep the euro-dollar defensive early this week.” The EUR/USD is currently trading at $1.3342 as of 8:30am, GMT.

U.K. Prime Minister Gordon Brown will today pledge 500 million pounds to encourage hiring and counter rising unemployment amid the deepest recession in almost three decades. Meeting with business and union leaders, Brown will offer as part of the plan 2,500-pound payments to employers to recruit and train those who have been unemployed for at least half a year, the Department of Work and Pensions said. “Because the risk of long-term unemployment increases as skills and confidence depreciate, we are today setting out a new guarantee of intensive support for anyone still unemployed after six months,” Brown will say, according to the text of remarks released by Brown’s office. The GBP/USD is currently trading at 8:42am, GMT.

The Japanese yen climbed across the board on Monday as a grim global outlook favoured safe-haven currencies, while the euro stayed on the defensive on talk of an aggressive cut in eurozone interest rates later this week. The rush back into the safe-haven yen had knocked the U.S. dollar down to 89.96 yen by Monday morning. Investors in Asia were still reacting to Friday's dismal U.S. payrolls report which showed 1.1 million jobs lost since November and the highest unemployment.

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Published on  Mon, Jan 12 2009, 10:06 GMT