ForexGen News | Euro falls against dollar to $1.2593

Tuesday, December 2, 2008

Euro falls against dollar to $1.2593 as investors expect ECB rate cut


The euro fell against the dollar Tuesday on increasing expectations of steep European rate cuts later this week and as poor economic data from the U.S. prompted investors to move their money from equities into the safety of assets such as U.S. Treasuries.

The 15-nation euro traded at $1.2593 in early European trading, down from the $1.2672 in late New York trading Monday.

The rise came after Monday's sharp drop in American stocks after manufacturing and construction data added to concerns about the holiday shopping season.

The dollar has tended to benefit from falling stock markets as investors seek safety in assets such as dollar-denominated U.S. Treasuries.

At the same time, reports out of Europe and Britain on Monday also revealed the toll the global crisis was taking on their economies.

A leading housing report from Hometrack Ltd. in Britain said home prices fell to their lowest level in nearly three years in November, while a survey of manufacturing activity showed a record pace of contraction in November. In the euro zone, retail sales in Germany fell 1.5 percent in October from the year before.

Both the European Central Bank and the Bank of England are expected to cut their interest rates Thursday this week to support their slumping economies.

While many observers think the ECB will reduce its benchmark rate by half a percentage point to 2.75 percent -- with some thinking it may cut it by three quarters of a point-- the Bank of England is expected by many to lower its rate by a whole percentage point to 2.00 percent, which would be equal to its lowest level since the bank was founded in 1694.

Though lower interest rates can spark a nation's economy, they often weigh on its currency as traders transfer funds to countries where they can earn higher returns.

In other currency trading, the British pound fell to $1.4821 Tuesday from $1.4910, while the dollar bought 92.92 Japanese yen, down from the 93.40 yen it bought late Monday in New York.

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