The Euro trades in the lows as fears Eastern Europe slump may spread

The euro traded low against the dollar on concern the economic slump in Eastern Europe will deepen a recession in the 16-nation currency bloc. The currency may decline for a second day against the yen on speculation the European Central Bank will signal it plans to cut interest rates again this year, after leaving them unchanged at a meeting today. “Given growing concerns about turmoil in emerging markets such as Kazakhstan and Russia, the euro is a sell,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader. The ECB will keep its main refinancing rate at 2 percent at its policy meeting today, according to traders and economists. ECB President Jean-Claude Trichet reiterated last week that the next “important” meeting for policy makers will be in March. The EUR/USD is currently trading at $1.2822 as of 8:35am, GMT.

Sterling strengthened on Wednesday, particularly against the euro, after data showed that the deterioration in the UK service sector slowed and a credit rating downgrade of Russia spurred heavy euro selling. The focus for sterling now shifts to the Bank of England's interest rate decision and statement on Thursday. Economists and financial markets pricing point to a cut of 50 basis points to 1.0 percent. "Today's move does not seem to be a sterling move because it would be very surprising if people were doing much with sterling ahead of a big event like tomorrow, they'll wait and see what the BoE does and then take a position, and if you look at dollar/sterling that's been broadly stable today," said Barclays Capital FX strategist Adarsh Sinha.

The yen may strengthen against the dollar, on speculation Japanese investors will sell overseas assets and bring funds home as the nation’s fiscal year-end approaches. “Rising capital repatriation before the end of the Japanese fiscal year in March may send the yen toward 85,” said Shigeru Nakane, a foreign-exchange dealer at Resona Bank Ltd., a unit of Japan’s fourth-largest bank. Bank of Japan board member Atsushi Mizuno said today the central bank should take “extraordinary” actions to counter the recession, indicating it may consider more steps after buying shares and corporate debt. “It’s important to be ready to act promptly and consider taking policy action that may be considered extraordinary under normal circumstances,” Mizuno said in a speech in Gifu, central Japan. The economy will remain in a “severe” state next fiscal year, he said. The USD/JPY is currently trading at 89.55 as of 8:40am, GMT.

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