Eurozone inflation decline weakens euro

Story link: Eurozone inflation decline weakens euro

The euro was weaker versus the US dollar Tuesday on speculation that the European Central Bank will cut interest rates more than previously expected due to declines in Eurozone inflation over the past few months.

Inflation in the Eurozone was at 1.6 percent in December, less than the 1.8 percent which had been anticipated, falling from 2.1 percent in November and 3.2 percent in October.

Some analysts believe that inflation in the region will go negative later in the year.

The speculation favoring cuts comes despite comments from ECB president Jean-Claude Trichet implying that he prefers to see a pause in cuts.

At just before noon in New York it took $1.3430 to buy a euro while a euro was worth ¥126.7258.

The greenback also gained in relation to the Swiss franc, with it taking SFr1.1224 to buy a dollar in midday trade in New York.

The dollar’s gains came on reports of comments from US President-elect Barack Obama that he favors an economic stimulus plan for the US worth $775 billion over 2 years.

Meanwhile, the pound also gained on the euro after the Eurozone purchasing managers’ index dropped to 42.1 in December, its lowest since the survey began a decade ago.

The pound was trading at 90.8p to the euro while it also gained on the yen as it took ¥139.5652 to buy a pound.