Euro, Pound Weaken on Concern Economic Woes Will Be Prolonged

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The euro weakened for a third day against the dollar on speculation business sentiment in Germany slumped as credit losses spread through Europe, fueling expectations the European Central Bank will lower interest rates.

The British pound approached a 23-year low versus the greenback on speculation the Bank of England will cut interest rates to zero. The yen advanced toward a seven-year high versus the euro before U.S. reports that may show home sales fell and the world’s largest economy contracted the most since 1982, spurring demand for Japan’s currency.

“Traders are likely to attack the euro and the pound further,” said Saburo Matsumoto, senior manager of foreign- exchange sales at Sumitomo Trust & Banking Co. in Tokyo. “Europe and the U.K. are still coming to terms with the scale of the economic problems they face. This is also supportive of gains in the yen and the dollar.”

The euro fell to $1.2901 as of 3:17 p.m. in Tokyo from $1.2975 late in New York on Jan. 23, when it slid to $1.2765, the lowest in more than six weeks. The 16-nation currency traded at 114.77 yen from 115.12 yen. The euro touched 112.12 yen on Jan. 21, the weakest since March 2002. The dollar bought 89.03 yen from 88.75 yen.

The pound dropped to $1.3602 from $1.3804. Sterling reached $1.3503 on Jan. 23, the lowest since September 1985. The U.K. currency declined to 95.02 pence per euro from 94.02. It also fell to 121.09 yen from 122.42 yen after reaching a record low of 118.85 yen on Jan. 23. The pound may fall to $1.35 today, Matsumoto said.

From Bloomberg News.