Euro Falls As Recession Deepens

It has been one month the analysts were waiting for a rate cut by the European Central Bank. “The euro zone’s growth outlook is significantly weaker than in the U.S., and that will ultimately weigh on the euro,” said Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France’s biggest bank. “The ECB will realize that it’ll have to cut interest rates to 1 percent in 2009.”

The euro fell one percent to $1.3899 at 7:31 a.m. in New York, from 1.4045 yesterday, reports Bloomberg. Europe’s currency fell 0.2 percent to 127.19 yen from 127.41, after sliding 22 percent last year. The dollar rose 0.5 percent to 91.23 yen from 90.74 following a 19 percent drop in 2008.

Bloomberg Reports on the latest of Euro and Dollar:

"The euro’s 10 percent gain versus the dollar last month may “prove unsustainable given the negative implications renewed euro strength is likely to have on the euro-zone economic growth outlook,” wrote Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi Ltd. in London, in a note to clients today. “A return to more normal liquidity conditions in January will signal a partial reversal of recent euro strength.”

The ECB will lower its main refinancing rate to 1.5 percent by the second quarter of this year, a Bloomberg survey predicts. The central bank cut the rate by 1.75 percentage points since October, the first reductions since June 2003, after a global credit crisis helped trigger the euro region’s first recession in 15 years."