Tuesday January 13, 11:05 PM
Euro slides on rate cut expectations; dollar firm
NEW YORK (AFP) - The euro tumbled to a one-month low against the dollar Tuesday as traders priced in a likely eurozone interest rate cut and the dollar firmed on a better-than-expected report on the US trade deficit.
The single European currency at 2200 GMT fetched 1.3180 dollars, down from 1.3362 late Monday in New York. The euro at one point fell to 1.3141 dollars, a level it last touched on December 11.
The dollar meanwhile edged up to 89.36 yen against 89.21 on Monday.
Analysts said the euro was weighed down by speculation the European Central Bank (ECB) on Thursday again would reduce its benchmark interest rates in the face of a worsening eurozone recession and sinking inflation.
The ECB has already lowered its key rate by 1.75 points in three moves since October, with analysts now foreseeing a further cut of a quarter or a half percentage point.
Boris Schlossberg at Global Forex Trading said the ECB may even be more aggressive in battling the financial crisis following a similar stand by the US Federal Reserve.
"Some traders have started to anticipate a 75 basis point rate cut from the ECB this Thursday," he said.
"We very much doubt that (ECB chief Jean-Claude) Trichet and company would suddenly become so dovish in their monetary policy and anticipate a 50 basis point rate cut at most."
Lower interest rates tend to weaken a currency, making it less attractive to investors.
Adding further pressure on the single currency were fears for an expansion in eurozone indebtedness.
The ratings agency Standard (SNDH.PK - news) and Poor's on Monday put Spain's credit ratings on watch for a possible downgrade due to the country's rapidly slowing economy, which would make raising money in debt markets more expensive.
The dollar was meanwhile helped by comments from US Federal Reserve chairman Ben Bernanke who said in a speech in London that the US central bank still had "powerful tools" at its disposal to tackle the economic crisis -- even if its main interest rate has been lowered to near zero -- and suggested a recovery was possible by late 2009.
"The global economy will recover, but the timing and strength of the recovery are highly uncertain," Bernanke said in a speech at the London School of Economics.
The dollar also got a lift from data showing the US trade deficit fell a hefty 28.7 percent in November to the lowest level in five years but the news was tempered because of the sharp contraction in global commerce seen in the report.
The report "highlights the fact that this crisis is indeed global, as world trade is effectively diminishing," said PNC Bank's John Sylvia.
"The US dollar continues its strength this morning as global economic concerns reignite a flight to quality into the US Treasury market. The move to US government-backed securities is providing a wave of US dollar buying, taking it to its highest level versus the euro in 2009."
In late New York trade, the dollar stood at 1.1190 Swiss francs after 1.1142 Monday.
The pound was at 1.4493 dollars from 1.4803.
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