Euro Falls the Most in 4 Years


The euro slumped the most in more than four years against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows.

The euro also fell to a three-week low versus the yen after ECB President Jean-Claude Trichet said economic growth will be ``particularly weak'' through the third quarter and policy makers kept the benchmark rate unchanged yesterday. The South African rand led losses among the most-traded currencies on speculation the central bank will cut borrowing costs. Crude oil fell, heading for its fourth decline in five weeks.

The euro declined 1.6 percent to $1.5081 at 8:19 a.m. in New York and reached $1.5074, the lowest level since Feb. 28, from $1.5325 yesterday. It was the biggest one-day fall since June 9, 2004. Against the yen, the European currency traded at 165.68, from 167.70. The dollar rose 0.4 percent to 109.79 yen after touching 109.97, the strongest since Jan. 10.

The Dollar Index on the ICE futures exchange, which tracks the dollar against the currencies of six U.S. trading partners, reached 75.582 today, the highest since Feb. 26.

The euro's decline below $1.53 and the break of the 200-day moving average at $1.5226 ``marks a significant change in sentiment for the dollar,'' pointing to a further decline to $1.46, Kevin Edgeley, a London-based technical analyst at Goldman Sachs Group Inc., wrote in a report today.

Trichet said yesterday he has ``no bias'' or ``pre- commitment'' toward future rate movements after the central bank left the main refinancing rate at 4.25 percent. He told reporters in Frankfurt that while inflation remains a threat, risks to economic growth are ``materializing.''

European retail sales dropped by the most in at least 13 years in June, the European Union said on Aug. 5. Consumer confidence slid in July by the most since the Sept. 11, 2001, terrorist attacks, the European Commission said July 30.

The euro-dollar exchange rate and oil have 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 euro is headed for a fourth weekly decline against the dollar, the worst losing streak since May 2007. The U.S. currency headed for its biggest weekly gain against the yen in almost two months.


TradingEconomics.com, Bloomberg
8/8/2008 6:42:20 AM