The single currency tumbled from 1.4653 to two-week low of 1.4440 against the dollar on Thursday as European Central Bank President Jean-Claude Trichet said the U.S. economic slowdown may curb growth in Europe, adding speculation that the ECB will lower interest rates later this year although ECB kept interest rates unchanged at 4.0% as widely expected. The implied rate on the June Euribor interest-rate futures contract fell to 3.78%, from 3.93% on Wednesday. Trichet also said the central bank remained concerned about a potential wage-price spiral. Inflation in the countries sharing the euro accelerated to 3.2% in January.
The British pound fell sharply from 1.9625 to 1.9388 after the Bank of England lowered rates by 25 basis points to 5.25% as widely expected from 5.50%. The release of weaker-than-expected U.K. industrial and manufacturing production also put pressure on the cable.
On the data front, U.S. weekly jobless claims fell to 356,000 last week (forecast was 340,000) from previous week’s 378,000 and that pending sales of previously owned homes slid a steeper-than-expected 1.5% in December, however, there was little impact on the foreign exchange market.
The greenback strengthened broadly against major currencies after U.S. Senate Democrats agreed to drop expanded unemployment aid from their economic stimulus legislation, clearing the way for reaching an agreement with the House. The decision makes it likely that lawmakers can meet their deadline of sending the $150 billion stimulus measure to President George W. Bush by the end of next week.
Interest-rate futures showed 90% odds the Fed will cut borrowing costs to 2.5% on March 18, and a 10% chance the rate will be lowered to 2.25% from present 3.00%.
U.S. currency rallied from 105.91 to 107.83 versus the Japanese yen on renewed cross selling in jpy due to the rebound in U.S. stocks. The greenback also rose strongly versus Swiss franc from 1.0933 to 1.1104.
Friday will see the release of Japan’s machine orders and economic watch, German trade balance, current account and industrial production and U.S. wholesale inventories. Investors are now looking to any currency-related comments from the meeting of Group of Seven finance ministers and central bankers in Tokyo over the weekend.