Euro Trades Near Two-Month After ECB Leaves Key Rate on Hold

By Kim-Mai Cutler and Ron Harui

Feb. 5 (Bloomberg) -- The euro traded near a two-month low against the dollar after the European Central Bank left its key interest rate on hold.
Policy makers kept the main refinancing rate at 2 percent, according to a statement from Frankfurt. ECB President Jean- Claude Trichet is scheduled to give a press conference at 2:30 p.m. local time. The pound rose on speculation the Bank of England will pause in cutting borrowing costs after it reduced its benchmark rate today.

“The market is now going to focus on the press conference and what signal it will give pertaining to a March rate cut,” said Derek Halpenny, the London-based European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. “We won’t see a huge bounce. The euro should stay under selling pressure as growth and inflation are revised to the downside.”


The euro traded at $1.2839 as of 12:49 p.m. in London from $1.2849 in New York yesterday. It reached $1.2706 on Feb. 2, the lowest level since Dec. 5. The currency was at 115.21 yen from 114.90 yen. The dollar was at 89.73 yen, from 89.43 yen.
The ECB’s decision was in line with economists’ forecasts in a Bloomberg survey. Trichet reiterated last week that the next “important” meeting for policy makers will be in March.
Investors added to bets the ECB will lower borrowing costs again later this year. The yield on the three-month Euribor interest rate futures contract due in March was at 1.81 percent today, down from 1.84 percent a week ago.

Bank of England 

The pound rose on speculation the Bank of England will pause with interest-rate cuts. Policy makers led by Governor Mervyn King reduced the rate by a half-percentage point to 1 percent, the lowest in its history.
“My impression is that the Bank of England is suggesting this is as much as they wanted to do for now,” said James McCormick, London-based global head of foreign-exchange and local-markets strategy at Citigroup Inc. “Policy makers have moved things a lot already. We are moving into, at least, a short period of rates on hold. The pound may be reaching the bottom.”
The U.K. currency was at $1.4612, from $1.4468 yesterday, and 88.05 pence per euro, from 88.81.
The Mexican peso traded little changed at 14.44 per dollar after the country’s central bank bought pesos in the foreign- exchange market to halt its slide. It weakened to a record 14.7059 yesterday.

Yen Falls 

The yen slid after Deutsche Bank AG Chief Executive Officer Josef Ackermann said Germany’s largest bank generated 2.8 billion euros in revenue in the first month of the year, sapping demand for the Japanese currency as a refuge.
The yen’s 21 percent gain since the end of September has sapped earnings at exporters including Toyota Motor Corp., which is forecasting its first loss in 71 years. The government should sell the yen to limit its appreciation, according to Keidanren business lobby Chairman Fujio Mitarai and Honda Motor Co. President Takeo Fukui.

“The dramatic collapse of the Japanese economy cannot continue to be ignored by policy makers,” Dwyfor Evans, a currency strategist with State Street Global Markets in Hong Kong, wrote in an e-mailed note today. “Every day that passes brings intervention closer. The foreign-exchange market should take heed.”
Bank of Japan board member Atsushi Mizuno said today the central bank should take “extraordinary” actions to counter the recession, indicating it may consider more steps after buying shares and corporate debt.
“It’s important to be ready to act promptly and consider taking policy action that may be considered extraordinary under normal circumstances,” Mizuno said in a speech in Gifu, central Japan. The economy will remain in a “severe” state next fiscal year, he said.

To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
Last Updated: February 5, 2009 07:56 EST