Euro Drops to Two-Year Low

The euro dropped to its lowest in more than two years against the dollar on speculation the European Central Bank will cut interest rates as the global credit crisis pushes the region toward a recession.

The currency declined for a third day before a German report today that economists forecast will show consumer confidence fell to the weakest since June 2003. ECB President Jean-Claude Trichet said yesterday he may cut borrowing costs next week. The yen ended a five-day gain against the dollar on speculation Japan's central bank will sell its own currency for the first time since March 2004.

The euro fell to $1.2413 at 11:46 a.m. in Tokyo from $1.2493 late yesterday in New York. It earlier touched $1.2330, the weakest since April 2006. The 15-nation currency was at 115.87 yen from 115.92 yen yesterday, when it reached 113.64 yen, the lowest level in more than six years. The yen declined to 93.16 per dollar from 92.78 yen.

The euro weakened against 14 of the 16 most-active currencies. GfK AG's index, based on a survey of about 2,000 people, fell to 1.5 in November from 1.8 in October, according to a Bloomberg News survey of economists. The market-research company will release the report at 8:10 a.m. in Nuremberg.

The Group of Seven industrial nations expressed concern in an unscheduled statement yesterday about the yen's ``excessive volatility'' after a request from Japan, Nakagawa said on the same day, adding his government was ready to act if needed. The currency had earlier traded near the strongest versus the euro since May 2002 and close to a 13-year high against the dollar.

The benchmark interest rate is 0.5 percent in Japan, compared with 1.5 percent in the U.S., 3.75 percent in the 15- nation eurozone and 4.5 percent in the U.K. A JPMorgan Chase & Co. index of G-7 currency volatility touched 26.55 on Oct. 24, the highest level since its inception in 1992. Higher volatility can reduce profits in carry trades. It was at 24.63 yesterday.

Governments worldwide are taking action to curb large swings in currencies. The Reserve Bank of Australia bought its own currency for a third day today as the Australia dollar came close to dropping below 60 U.S. cents for the first time since April 2003.

Australia's central bank intervened in the market, a spokesman for the Sydney-based RBA said today by phone. He declined to be identified. The intervention came amid similar circumstances to those yesterday and on Oct. 24, when the bank ``provided liquidity,'' according to the spokesman.,
10/28/2008 2:53:33 AM