NEWS | Wednesday, 05 March 2008

Dollar halts decline against euro

The dollar has halted its decline against the euro ahead of a eurozone interest rate decision on Thursday.
The European Central Bank (ECB) is unlikely to cut rates below 4%, analysts said, but hints of future cuts could prompt euro weakness.
The ECB expressed concern on Monday about the effects of the strong euro on the region’s cooling economy.
One euro bought $1.522 in afternoon trade, slightly off the all-time high of $1.528 it touched on Monday.
One euro bought 76.56 pence in afternoon trade. At one point on Monday it bought 76.78p, an all-time high.
Since the beginning of last week, the dollar has fallen against the euro as analysts forecast steeper rate cuts in the US - whose economy has been hit by the sub-prime credit crisis - than in the eurozone. Higher interest rates can make eurozone assets relatively more attractive to investors.
On Monday, the ECB president Jean-Claude Trichet expressed concerns about the rising euro amid fears that the currency’s strength could damage European exporter profits.
This view was echoed by a group of eurozone finance ministers.
Analysts interpreted the comments as a call to the US to prevent further declines in its currency but did not see the comments as a precursor to immediate intervention in the currency market.
“The market hasn’t completely re-evaluated the situation based on these statements, but they have taken the edge off some of the euro strength we have seen recently,” said Johan Javeus, a foreign exchange strategist at SEB.