The Euro Declines as the ECB meet today to decide on the rate cut

The euro fell against the dollar, on speculation the European Central Bank will cut interest rates by at least half a percentage point at a policy meeting today. The yen strengthened versus higher-yielding currencies after a slump in U.S. retail sales raised concern the global recession is deepening, boosting the appeal of the Japanese currency. “There’s no doubt that the ECB will cut rates by 50 basis points, with some expecting 75 and even 100 basis points,” said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank AG in Tokyo. “It’s obvious that the euro zone’s economy is worsening. There’s a downside risk for the euro.” A basis point is 0.01 percentage point. The EUR/USD is currently trading at $1.3167 as of 8:30am, GMT.

Prices paid to U.S. producers probably fell in December as demand for raw materials collapsed with the deepening recession, economists said before a report today. The global slowdown has caused sales at companies such as Alcoa Inc. to plummet, leading to cutbacks in output and hiring that are reverberating through the economy. Falling commodity costs and asset values are raising concern among Federal Reserve policy makers that the U.S. may tip into a deflationary spiral of deep and extended price decreases that are difficult to stop. The Labor Department’s report on wholesale prices is due at 8:30 a.m. in Washington. Forecasts ranged from declines of 0.8 percent to 2.9 percent. Prices excluding food and energy probably rose 0.1 percent for a second month. The USD/JPY is currently trading at 88.65 as of 8:55am, GMT.

Sterling gained against the dollar on Wednesday, helped by the announcement of a UK government package to support small businesses. The UK government announced measures to provide 20 billion pounds in lending to small business and a 75 million pound enterprise fund to invest in firms needing equity. Earlier, Euro had dropped to a session low against the pound of 90.15 pence on unconfirmed reports that the Irish government may seek IMF help if the economy continues to deteriorate. The EUR/GBP is currently trading 0.9025 as of 9:00am, GMT.

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