Thursday August 14, 06:27 PM
Euro drops as eurozone economy contracts
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LONDON (AFP) - The euro dipped against the dollar on Thursday as official data revealed that the eurozone economy had contracted for the first time since its creation in 1999.
In late European deals, the European single currency fell to 1.4855 dollars from 1.4909 late in New York on Wednesday.
Against the Japanese currency, the dollar rose to 109.61 yen from 109.57.
The eurozone economy suffered negative growth, or contraction, in the second quarter, official data showed on Thursday.
Output fell by 0.2 percent in the April-June period as German growth succumbed to global strains.
The results, released by the EU's Eurostat data agency, come in the context of rising concern that recession, two successive quarters of negative growth, is now stalking the 15-nation eurozone.
Eurozone gross domestic product (GDP) had grown by 0.7 percent in the first three months of 2008.
"If euro area GDP growth in the third quarter does show some positive growth, then in our view the ECB is unlikely to yield to pressure for lower rates at least during this year," said Barclays Capital analyst Julian Callow.
The economic climate in the eurozone is at the lowest level in 15 years, the latest Ifo World Economic Survey showed on Thursday.
Analysts expect economic activity to worsen further over the next six months, according to the report.
"Many players are keen to sell the euro and the pound as the outlook for the economy and monetary policy in Europe is very uncertain," Akio Shimizu, foreign exchange chief at Mitsubishi UFJ Trust and Banking, told Dow Jones Newswires.
"It's very difficult now to find positive factors to help these currencies to bounce back," he added.
"Not much can stop the dollar's current uptrend," said one analyst at Commerzbank (Xetra: 803200 - news) .
"...Weak Q2 GDP data from Germany and the Eurozone is likely to underline the impression that the crisis has reached the Eurozone and that the worst is yet to come," he said.
The British pound languished near the lowest level for almost two years against the greenback, falling to 1.8678 dollars in Asian trade, after the Bank of England issued a gloomy economic outlook. It later settled at 1.8765.
The central bank had Wednesday said that British inflation could fall sharply toward the government's target of 2.0 percent from early 2009, which prompted traders to bet on interest rate cuts sooner than previously expected.
Barclays Capital analysts said they now expect quarter-point rate cuts in Britain in November (Frankfurt: A0S9N7 - news) , February, April, and May.
The dollar was generally firm against other major currencies despite an overnight slump on Wall Street blamed on rebounding oil prices and renewed worries over the health of the financial sector, dealers said.
In London trading on Thursday, the euro changed hands at 1.4855 dollars against 1.4909 late on Wednesday, at 163.32 yen (163.38), 0.7941 pounds (0.7972) and 1.6213 Swiss francs (1.6188).
The dollar stood at 109.61 yen (109.57) and 1.0881 Swiss francs (1.0856).
The pound was at 1.8765 dollars (1.8965).
On the London Bullion Market, the price of gold edged down to 818 dollars per ounce from 818.50 dollars late on Wednesday.
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