Euro Hits New Low As Rates Kept on Hold

The euro dropped to a one-year low against the dollar and a two-year trough against the yen as the European Central Bank left interest rates unchanged after its policy meeting.

This has seen the euro weaken amid increasing evidence that the effects of the turmoil were spreading outside the US and hitting European financial institutions, with authorities in the region having to step in and bail-out several banks, including Fortis and Dexia.

The euro traded down to a one-year low of $1.3856 against the dollar, before recouping some ground to stand down 1 per cent at $1.3882. The single currency also lost 0.7 per cent to £0.7856 against the pound and dropped 1.5 per cent to Y146.14 against the yen.

The dollar rose 0.3 per cent to $1.7660 against the pound, climbed 0.7 per cent to SFr1.1322 against the Swiss franc and gained 0.5 per cent to $0.7865 against the Australian dollar.

The dollar lost ground against the yen, however, easing 0.4 per cent to Y105.36, as a drop in Asian equities heightened risk aversion and boosted the safe-haven appeal of the low-yielding Japanese currency.

The Australian dollar
fell for the seventh day and New Zealand's declined as investors sold higher- yielding assets on concern the U.S. bailout won't stop the world's biggest economy sliding into recession. The currencies also fell against the yen as U.S. manufacturing contracted in September at the fastest pace since the last recession, signaling global economic growth will slow

The Australian dollar fell 1.7 percent to 78.71 U.S. cents as of 5:06 p.m. in Sydney from 80.05 cents in late Asian trading yesterday. New Zealand's dollar weakened 1.1 percent to 67.01 U.S. cents from 67.77 cents.

Russia's ruble weakened for a sixth day against the dollar before a central bank report on the country's foreign-currency reserves. The managed currency fell to 25.8012 per dollar by 10:58 a.m. in Moscow, from 25.7333 yesterday, extending its decline to 3.1 percent., Financial Times
10/2/2008 5:23:20 AM