Forex Official Blog

Euro falls slightly against dollar as investors anticipate interest rate cuts

BERLIN (AP) -- The 15-nation euro fell slightly against the U.S. dollar as markets anticipated rate cuts from both the European Central Bank and the Bank of England later Thursday.

In morning European trading the common currency bought $1.2620, down from $1.2655 late Wednesday in New York.


The British pound fell to $1.4599 from $1.4722 yesterday, while the dollar weakened slightly to trade at 93.08 Japanese yen from 93.09 yen in New York.

Both the ECB and the Bank of England are expected to cut their interest rates when they meet Thursday.

Though lower interest rates can jump-start an economy, they often weigh on its currency as traders transfer funds to countries where they can earn higher returns.

"Aggressive cuts are widely expected by both parties and this has been factored into prices so look for volatility initially if we don't see the anticipated 100 point cut in the U.K. and a 50-point cut in the euro zone," said James Hughes at CMC Markets. "However, it's worth bearing in mind that some speculation is circulating that an even softer stance could be adopted and this would certainly end up weighing on the respective currencies if it proves to be the case."

Many observers think the ECB will reduce its benchmark rate by half a percentage point to 2.75 percent -- though some are predicting it will cut it by three quarters of a point.

"Just a 50 basis point rate cut by the ECB should be mildly disappointing for markets, although investors would refrain from selling heavily the euro ahead of a new shocking jobs report in the U.S. tomorrow," said a statement from Milan-based UniCredit.

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.

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