Euro Falls Versus Dollar, Rises Against Others

on August 06 2009 1:25 PM

RTTNews - The euro saw modest weakness against the dollar, but gained on the pound and yen as investors considered the European Central Bank's decision to leave interest rates alone. An encouraging employment report in the U.S. boosted the greenback.

The ECB maintained its key interest rate at a record low level for the third straight month as risks to economic outlook are now balanced. In the post meeting pres conference, ECB president Jean-Claude Trichet said the economy is likely to remain weak for the rest of 2009.

In its Governing Council meeting held in Frankfurt, the ECB left its key interest rate at 1%. The decision was in line with economists' expectations. The last change in the key interest rate was in May, when the bank cut the rate by 25 basis points to its current level. The bank has lowered the key interest rate by a total of three and a quarter percentage points since early October 2008.

The pound saw weakness against the other majors as the Bank of England decided to hold its key interest rate at a historic low and to raise the size of quantitative easing measures by GBP 50 billion to GBP 175 billion.

In other news, Germany's factory orders rose more than expected in June on robust foreign demand, giving enough hopes for a notable increase in industrial production in the coming months.

The euro slipped to the low end of a recent trading range against the dollar, faling near 1.4350. The European currency reached a 7 1/2-month high of 1.4444 earlier this week.

The euro rallied to a six-day high of 0.8560 versus the British pound, moving off of a six-week low of 0.8463 earlier this week.

The Monetary Policy Committee of the Bank of England voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5% as expected. Further, the MPC also agreed to raise the size of the bond purchase programme using the central bank reserves to GBP 175 billion from GBP 125 billion.

The euro moved to an eight-week high of 137.95 against the Japanese yen, before later slipping back near 137.00.

In the Eurozone, factory orders rose 4.5% month-on-month in June, the biggest gain in two years, after an increase of 4.4% in May, data released by the Federal Ministry of Economics and Technology showed Thursday. Economists had forecast a slight increase of 0.6%. Orders grew for the fourth straight month in June.

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