Euro Snaps Five-Day Decline Against Dollar Before Rate Decision

By Agnes Lovasz and Stanley White

Sept. 4 (Bloomberg) -- The euro snapped five days of declines against the dollar, rising from a seven-month low, on speculation the European Central Bank will signal today it will resist cutting interest rates any time soon.

The 15-nation currency also climbed from near its weakest in five months against the yen before the ECB's decision, at policy makers will keep the key rate at a seven-year high, according to a Bloomberg News survey. ECB President Jean-Claude Trichet will hold a press conference later. The pound traded near its lowest in three years against the yen and a record low versus the euro before the Bank of England's rate decision.

``Recent ECB rhetoric clearly points to Trichet adopting a hawkish tone, keeping the door on possible rate cuts firmly shut,'' analysts led Russell Jones, the head of global fixed- income and currency research in London at RBC Capital Markets, wrote in a research note. ``Any hint of dovishness would come as a surprise.''

The euro rose to $1.4534 as of 8:42 a.m. in London, from $1.4498 yesterday. It touched $1.4385 yesterday, the lowest since Jan. 22. Against Japan's currency, the euro climbed to 157.60 yen after yesterday reaching 156.26, the weakest since March 31. The yen traded at 108.30 per dollar from 108.29.

The euro has dropped 5.1 percent versus the dollar since Aug. 7, when Trichet said growth in the countries using the euro will be ``particularly weak'' through the third quarter.

``You can't buy the euro as a long-term investment,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The ECB will acknowledge that the economic outlook has worsened, and that will accelerate the euro's decline.'' The euro may weaken to $1.4410 today, Soma forecast.

The pound was at $1.7834, from $1.7768 yesterday, when it reached a two-year low of $1.7668. It traded at 193.25 yen, after touching 191.49, the weakest since January 2005.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

Last Updated: September 4, 2008 03:51 EDT