Euro declines versus USD on interest rate speculation

Euro declines versus USD on interest rate speculation

Story link: Euro declines versus USD on interest rate speculation

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The euro was weaker Wednesday on comments from a member of the European Central Bank’s council which triggered speculation that the ECB could join the US Federal Reserve in cutting interest rates this year.

It was a turnaround from recent comments from the ECB’s president that indicated virtually no chance of rate cuts in the foreseeable future.

In his comments, Bank council member Yves Mersch made reference to recent credit problems and the slowdown in the US economy among other issues in talking about downward pressures to the economy that could outweigh upward pressures on inflation in controlling monetary policy decisions by the ECB.

The euro went from a near record high versus the US dollar on Tuesday to a decline of over 1 percent in morning trade on Wednesday in New York, when it traded at $1.4640 to the euro before coming back slightly to trade at $1.4651 to the shared currency.

The euro was also down against the yen as it cost ¥157.4230 to buy a euro at just before 1 p.m. in New York.

The US dollar gained on the yen, but not before falling to ¥105.29 to the dollar in early trade, falling below ¥106 to the dollar for the first time in almost two and a half years.

In early afternoon trade in New York, the yen traded at ¥107.4450 to the dollar, as the dollar recovered on relatively good news concerning industrial production and foreign investment in the US.

However, the dollar touched a new record low versus the Swiss franc on a poor outlook for banks surrounding the subprime mortgage crisis, with the Swiss franc trading at SFr1.1005 to the dollar at early afternoon in New York.

The pound was stronger versus the euro and traded little changed against the US dollar after early declines on new data from the housing market that tended to favor a decline in UK interest rates.

In New York trade, the pound traded at 74.67p to the euro while the dollar traded at $1.9621 to the pound.