Euro Declines Against Dollar


The euro fell against the dollar, paring a gain last week that was the biggest this year, after European Central Bank policy maker Christian Noyer said regional economic growth may be weaker than expected, reinforcing speculation for lower interest rates.

The common currency declined as traders also pared bets on the Federal Reserve cutting interest rates again by a half- percentage point next month. The pound fell against all but one of the 16 most-active currencies after the U.K. government rejected bids from private companies to buy Northern Rock Plc and said it will nationalize the lender.

The euro, which weakened against 11 of the 16 major currencies tracked by Bloomberg, dropped 0.3 percent versus the dollar to $1.4638 by 1:55 p.m. in London, from $1.4682 on Feb. 15 in New York. Against the yen, it traded at 158.27 from 158.25.

The EU isn't immune to weakness in the U.S. economy or the consequences of the market turmoil triggered by the sub-prime loan crisis, the Financial Times cited Noyer, who is also governor of the Bank of France, as saying.

A ``high degree of uncertainty'' surrounded the short-term economic outlook, ECB policy maker Erkii Liikanen said today in an e-mailed statement. ``The impact of financial-market turbulence on the real economy of the U.S. and many other developed countries may be larger than estimated.''

Last week, the dollar had its biggest loss against the euro since the end of December as traders scaled back expectations on ECB rate reductions and Fed President Ben S. Bernanke signaled in a Congressional hearing he may cut them again to avert a U.S. recession.

European policy makers said markets had overreacted to prospects for slower economic growth. Economic reports showed European industrial production grew more than expected and German investors confidence unexpectedly increased.

The ECB expects economic expansion to slow to about 2 percent this year from 2.6 percent in 2007, according to its December projections, which will be revised in March. The International Monetary Fund on Jan. 29 lowered its euro-area growth forecast by half a point to 1.6 percent as the U.S. housing-market slump threatens to curb global economic growth.


TradingEconomics.com, Bloomberg
2/18/2008 7:49:41 AM