Euro Weakens to One-Month Low on ECB Outlook, Spain’s Rating

[Enivid]

The euro weakened for a third day versus the dollar, reaching a one-month low, as traders added to bets the European Central Bank will reduce interest rates, decreasing the appeal of the region’s assets.

The 16-nation currency also declined to the lowest level in more than a month against the yen after Standard & Poor’s said it may cut Spain’s credit rating. German Chancellor Angela Merkel’s coalition said yesterday it will spend 50 billion euros ($66.6 billion) to support Europe’s largest economy. New Zealand’s dollar fell to a four-week low after S&P said it may cut the country’s foreign-currency credit rating.

“There is more than enough room for the euro to fall further,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan’s largest brokerage. “The focus of the currency market is how far rates will fall in Europe, because the ECB is behind the curve compared with other central banks.”

The euro traded at $1.3257 as of 7:47 a.m. in London from $1.3362 yesterday in New York. It touched $1.3228, the lowest level since Dec. 11. The euro fell to 117.71 yen, the lowest since Dec. 8, before trading at 118.15 yen from 119.19 yen yesterday. The dollar traded at 89.12 yen from 89.22 yen. It fell to 88.88 yen yesterday, the weakest level since Dec. 19.

The euro may decline to $1.25 by next week, Amikura said.

From Bloomberg News.

 

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Here's the weekly summary of the world market:

US
US Stock markets slid on Monday as investors digested the prospect of the credit crunch inflicting a lasting U.S. recession that curbs growth worldwide, despite a $700 billion U.S. taxpayer bailout agreed by Congress on Friday. Financial futures markets currently imply the Fed will impose an emergency 50 basis point inter-meeting cut before the next scheduled gathering, October 28-29.

EU
European Central bankers are pumping emergency funding into interbank markets to keep a fear-riven financial system from seizing up and European Central Bank President Jean-Claude Trichet said on Monday night they would continue to do so as long as needed.

UK
The British government held talks with major banks on Monday evening at which the possibility of an injection of public money was discussed, according to a source familiar with the talks. Earlier reports by the BBC and others said three top banks, Royal Bank of Scotland, Lloyds TSB and Barclays were seeking 15 billion pounds ($26 billion) each to help them get through the financial crisis gripping global markets.


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