Euro Trades Near 7-Week Low Versus Dollar


The euro traded near a seven-week low against the dollar before a European Central Bank meeting at which President Jean-Claude Trichet may keep borrowing costs unchanged and acknowledge economic growth is slowing.

Europe's single currency may decline for a third day versus the dollar after German factory orders unexpectedly fell in June, giving ECB policy makers less reason to raise interest rates from a seven-year high.

The euro traded at $1.5432 against the dollar at 9:52 a.m. in Tokyo, from $1.5408 in New York yesterday, when it touched $1.5398, the weakest since June 16. It was at 168.79 yen from 169.16 yen. The dollar was at 109.37 yen, from 109.79 yesterday, when it touched 109.88, the highest since Jan. 10. The euro may fall to $1.5350 against the dollar today, Saito forecast.

The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

The Frankfurt-based ECB, which increased borrowing costs last month, publishes today's decision at 1:45 p.m. and Trichet holds a press conference 45 minutes later. Separately, the Bank of England will leave its key rate at 5 percent, another survey of economists shows. That decision is due at noon in London.

Trichet said on July 3 that he had ``no bias'' or ``pre- commitment'' after policy makers increased the main refinancing rate a quarter-percentage point.

Factory orders in Germany, adjusted for seasonal swings and inflation, declined 2.9 percent from May, the Economy Ministry in Berlin said yesterday. That's the biggest drop since July 2007.

The inflation rate for the euro region accelerated to 4.1 percent in July, the fastest pace in more than 16 years and more than double the pace the ECB targets.

Traders pared bets the ECB will raise the main refinancing rate for a second time this year. The three-month Euribor contract for December yielded 5.04 percent yesterday, down from 5.06 percent on Aug. 5.


TradingEconomics.com, Bloomberg
8/6/2008 7:19:54 PM