Euro Falls on speculation the ECB will cut rates today and in the future

The euro fell against the dollar on speculation European Central Bank President Jean-Claude Trichet will lower interest rates today and signal further cuts are needed to curb the deepening recession. The euro also headed for a fourth weekly loss versus the greenback before a statistics office report that economists say will reiterate Europe’s economy shrank the most in at least 13 years last quarter. The European Central Bank will cut its 2 percent target lending rate by half a percentage point to the lowest level since the European currency was introduced in 1999, according to traders and economists. The ECB left borrowing costs unchanged at its most recent policy review on Feb. 5. The euro weakened as much as 0.4 percent against the dollar and 1 percent against the yen when the ECB cut rates by half a percentage point on Jan. 15. The EUR/USD is currently trading at $1.2591 as of 8:40am, GMT.

The yen dropped to a four-month low, approaching 100 to the dollar, after a report showed Japanese companies slashed spending at the fastest pace in a decade. The yen declined versus 12 of 16 major currencies as Asian stocks rose, encouraging investors to buy higher-yielding assets with funds borrowed in Japan. Japan’s currency fell 7.9 percent versus the dollar in February, the biggest monthly decline since August 1995, after reports showed the economy shrank last quarter by the most since 1974 and the trade deficit increased in January to the widest since at least 1980. The yen dropped for a third day versus the dollar after the Ministry of Finance said Japanese businesses cut spending on capital equipment excluding software by 18.1 percent in the fourth quarter. The USD/JPY is currently trading at 99.44 as of 8:45am, GMT.

The pound fell on expectations the Bank of England will also reduce borrowing costs today. The pound declined on speculation the U.K. policy makers will cut their benchmark rate to almost zero and begin to create money and inject it into the economy by buying assets. The U.K. currency is poised for a second weekly loss on signs the nation’s recession is worsening. The economy shrank 1.5 percent in the fourth quarter, the most since 1980, a government report showed Feb. 25. The central bank on Feb. 11 forecast the economy will contract at an annual 4 percent rate by the end of this quarter. “We’ve got clear signals that the BOE is limbering up for quantitative easing,” analysts led by Callum Henderson, Singapore-based head of currency strategy at Standard Chartered Bank, wrote in a research note today. “We expect the BOE will cut rates to 0.5 percent and maintain them at these levels for the next year. Narrowing interest-rate differentials should be seen as further negatives for the pound.” The GBP/USd is currently trading at $1.4200 as of 8:58am, GMT.

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