The Euro falls against the Greenback as EU manufacturing comes out

The euro fell against the dollar before a European manufacturing report today that will probably show a recession is deepening in the 16-nation region. The euro headed for its first weekly decline in more than a month on prospects the European Central Bank will cut its key interest rate from 2.5 percent to spur spending. The currency also weakened as a chart traders use to predict price moves signaled December’s 10 percent rally against the dollar was too rapid. “There’s a lot more weakness in Europe ahead,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We’ve got them cutting to 1 percent by March.” The EUR/USD is currently trading at $1.3925 as of 8:22am, GMT.

Sterling rose in holiday-thinned trade on Wednesday, but was set for its worst yearly performance against the euro since the single currency's inception almost a decade ago as a bleak UK economic outlook hobbled sentiment. Worries about rising unemployment, deteriorating public finances and aggressive rate cuts have pummelled the pound in recent months. "Most of the bad news is already priced in to sterling, and this suggests the euro/sterling move has been a bit overdone. But the overall backdrop is still negative for sterling," said David Powell, G10 currency strategist at Bank of America in London. The GBP/USD is currently trading at $1.4530 as of 8:30am, GMT.

Manufacturing in the U.S. probably contracted in December at the fastest pace in almost three decades as the recession deepened and spread overseas, economists said before a report today. The Institute for Supply Management’s factory index fell to 35.4, the lowest level since 1980, from 36.2 the prior month, according economists and traders. Automakers have been among the hardest hit as November sales plunged to the lowest level in a quarter century, according to industry figures. President George W. Bush announced Dec. 19 that General Motors and Chrysler will get $13.4 billion in initial government loans to keep operating while they restructure operations to return to profitability. The USD/JPY is currently trading at 91.25 as of 8:45am, GMT.