The Euro and Sterling weaken on speculation that interest rates will go down

The euro and the British pound fell against the dollar, the 16-nation euro declined versus Japan’s currency before data that may show business sentiment in Germany slumped. Sterling approached a low versus the greenback after U.K. home prices had the biggest annual decline since at least 2001. U.K. policy member David Blanchflower said interest rates should be at zero to 0.25 percent to aid the economy, the Sunday Times reported yesterday. The central bank will cut its 1.5 percent main rate by a half-percentage point on Feb. 5, a Credit Suisse Group AG index of derivatives showed. The government’s plan for a second bank bailout in three months has stoked concern the financial crisis is deepening. “Traders are likely to attack the euro and the pound further,” said Saburo Matsumoto, senior manager of foreign- exchange sales at Sumitomo Trust & Banking Co. in Tokyo. “Europe and the U.K. are still coming to terms with the scale of the economic problems they face. This is also supportive of gains in the yen and the dollar.” The GBP/USD is currently trading at $1.3693 as 9:10am, GMT.

European stocks were seen opening lower on Monday, as worries over corporate earnings and the outlook for banks eclipse hopes of more government measures to revive the ailing global economy. President Barack Obama's top economic adviser would not rule out on Sunday that more funds could be needed to stabilize the U.S. financial system as the deep economic downturn weighs on banks' balance sheets. Adding to concerns over the banking sector, French lender BNP Paribas said on Monday it sees a fourth-quarter loss of around 1.4 billion euros ($1.81 billion), while Dutch financial group ING will take a 2008 loss of 1 billion Euros ($1.3 billion) and will tap into a Dutch state guarantee for its troubled loan portfolio, it said on Monday, adding its Chief Executive Michel Tilmant will step down. The EUR/USD is currently trading at $1.2952 as of 9:20am, GMT.

The U.S. dollar and Japanese yen will probably gain this week amid “favorable movements in short-term interest-rate spreads and a resumption of risk aversion,” Merrill Lynch & Co. said. “We expect a continuation of dollar and yen strength,” Steven Pearson, a strategist in London at Merrill Lynch, wrote in an e-mailed report today. Investors should short the euro against the dollar.

Today's Economic Events