LONDON: The euro fell sharply against other currencies yesterday amid growing expectations that the European Central bank will cut interest rates sharply this year.
In late European trade, the European single currency dropped to 1.3581 dollars from 1.3910 dollars in New York late on Friday. Against the Japanese unit, the dollar climbed to 93.70 yen from 91.79 yen on Friday.
“With the dismal data from the euro zone, the ECB will not be able to avoid lowering interest rates considerably further,” said analysts at Commerzbank. This view was bolstered by comments by European Central Bank vice president Lucas Papademos, who told German weekly WirtschaftsWoche that economic uncertainty meant “it’s quite possible that the recovery won’t start until the beginning of 2010”.
“In our view, such comments (from Mr. Papademos, who is always conservative in his comments) can be seen as a signal that the (ECB) governing council does envisage some further easing, although this seems to stop short of signaling easing as early as the Jan. 15 governing council meeting,” said analysts at Barclays Capital. The dollar was boosted by expectations that US president-elect Barack Obama’s stimulus plans will boost the ailing American economy, dealers said. “High expectations for Obama appear to be supporting US stocks and the dollar, although conditions surrounding the US economy are still pretty negative,” said Yosuke Hosokawa, head of foreign exchange at Chuo Mitsui Trust Bank.
Traders in Tokyo were relieved that there was no major bad news related to the economic crisis during the New Year holidays, Hosokawa added. Global stock markets have started 2009 on a broadly upbeat note on hopes the US economy will start to recover this year. But “it is still unlikely the dollar will continue to rise from current levels as players expect bad (US) job figures” on Friday, Hosokawa said. “ The dollar also strengthened against the euro, which was fluctuating after a widely watched survey showed euro zone manufacturing activity plunging to a record low in December.
Standard Chartered analysts predicted “a broad-based US dollar decline in the first half of 2009” as the economy worsens and the Federal Reserve adopts unorthodox credit measures after slashing interest rates to almost zero. As well as US jobs data on Friday, the other key event this week is the Bank of England’s latest monthly interest-rate policy meeting on Thursday. The BoE is widely expected to slash British borrowing costs to a record low level under the current 2.00 percent as Britain stands on the brink of recession, according to traders.
On the London Bullion Market, the price of gold fell to $853.50 an ounce from $874.50 late on Friday.
Meanwhile, world stock markets were mixed yesterday. London’s FTSE 100 index rose 0.39 percent to 4,579.64 points, the CAC-40 index in Paris rose 0.31 percent to 3,359.92 points, while the Frankfurt DAX gained 0.22 percent to 4,983.99 points.
On Wall Street, the Dow Jones Industrial Average dropped 0.46 percent to 8,992.72 at 1619 GMT and the tech-studded Nasdaq fell 0.39 percent to 1,625.84.
The broad-market Standard & Poor’s 500 index retreated 0.13 percent to 930.59.
In Asia on Monday, Tokyo’s Nikkei-225 index closed 2.07 percent higher in a half day of trading, its first of 2009, ending above the 9,000-point level for the first time since November 10. Elsewhere yesterday, stocks jumped 3.5 percent in Hong Kong and gained 3.29 percent in Shanghai. Taipei ended 2.3 percent higher but Sydney slipped 0.7 percent.