Monday February 2, 12:45 PM
Euro slips as dealers bet on ECB rate cut
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LONDON (AFP) - The euro dipped against the dollar on Monday as traders bet that the European Central Bank would cut interest rates later this week in a bid to boost ailing eurozone economies, analysts said.
The dollar also won support as investors looked for havens in the face of mounting worries about the outlook for the global economy.
In morning trade on Monday, the euro fell to 1.2740 dollars from a level of 1.2800 dollars reached in New York late on Friday.
Against the Japanese currency, the dollar edged up to 89.97 yen from 89.95 yen.
Traders said the market was looking ahead to interest rate decisions on Thursday from the European Central Bank and the Bank of England.
ECB chief Jean-Claude Trichet has hinted the bank is likely to put off lowering rates until March, although some traders still see a chance of a cut this week in light of the recent data.
"Prospects for euro/dollar remain subdued," said Commerzbank (Xetra: CBK.DE - news) analyst Antje Praefcke.
"The sharp fall in the rate of inflation makes an ECB rate cut more likely and is therefore putting additional pressure on the euro."
Lower interest rates weigh on currencies because they become a less attractive investment.
Inflation in the 16 countries using the euro dropped in January to a near 10-year low, slumping to 1.1 percent in the face of a sharp economic downturn, according to an official EU estimate issued before the weekend.
The fall brought 12-month eurozone inflation to the lowest point since July 1999 and was down sharply from the 1.6 percent that the European Union's Eurostat data agency recorded in December.
Elsewhere on Monday, the pound fell against the dollar as the market priced in another steep British interest rate cut.
The Bank (NASDAQ: TBHS - news) of England has already cut rates to a historic low of 1.5 percent and is expected to lower them by another 50 basis points to 1.0 percent this week.
The US Federal Reserve froze American interest rates at zero to 0.25 percent last week, when it also pledged to use "all available tools" to lift the country's battered economy out of a deep recession.
The foreign exchange market was meanwhile depressed by recent dismal economic data from the United States, Europe and Japan.
The dollar and the yen tend to rise in times of economic uncertainty because they are seen by many investors as less vulnerable to the turmoil.
New data on Friday showed the US economy shrank 3.8 percent in the fourth quarter of 2008. Japan's factory output plunged a record 9.6 percent in December.
In London trading on Monday, the euro changed hands at 1.2740 dollars against 1.2800 dollars late on Friday, at 113.27 yen (115.15), 0.8969 pounds (0.8817) and 1.4846 Swiss francs (1.4863).
The dollar stood at 88.97 yen (89.95) and 1.1661 Swiss francs (1.1610).
The pound was at 1.4197 dollars (1.4513).
On the London Bullion Market, the price of gold eased to 913.83 dollars an ounce from 919.50 dollars late on Friday.
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