Euro and sterling down on interest rate speculation

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The euro lost 0.5 percent in relation to the US dollar on Wednesday, to $1.2120, on continued speculation that the European Central Bank is on the brink of cutting interest rates. Some analysts thing, however, that this assumption is misplaced.

Much of the speculation is centering around the move by Riksbank to cut interest rates in Sweden earlier in the week. However, the analysts say that the difference between the circumstances in Sweden and those in the eurozone are very different, and that the Riksbank move will not necessarily lead to a cut in eurozone rates.

Speculation on interest rates also led to sterling declining by 0.4 percent in relation to the US dollar to $1.822 and its unchanged position of £0.666 against the euro. The decline of sterling in relation to the dollar came after the release of the minutes of the June meeting of the Bank of England’s Monetary Policy Committee, which revealed that it had been closer to cutting interest rates in the UK this month than had been assumed.

The minutes showed that while a 7 to 2 majority voted to keep interest rates at their present level, the two members of the committee who advocated a cut in rates had argued strongly for their position.

Some analysts think this means that rates in the UK will be cut in July or August.

The yen showed weakness as the US dollar rose in relation to the Japanese currency by 0.7 percent to ¥108.90. Contributing to the yen’s weakness was the announcement that Japan’s trade surplus had declined by 68.3 percent in May.

The yen also suffered from an announcement by the head of China’s state bank reiterating that revaluation of the renminbi is not likely to happen anytime soon. It is widely believed that revaluation of the Chinese currency will benefit the yen and other Asian currencies.