The EUR fell to a three-week low against the Dollar and declined versus the Yen before data that will probably show slowing regional inflation, giving the European Central Bank (ECB) more incentive to lower Interest Rates. The European currency fell to 1.3500 against the Dollar, and declined to 126.13 Yen from the previous 127.31. Inflation in the Euro-Zone has slowed to 1.6% last month. The inflation rate fell to 2.1% in November from 3.2% the prior month, the biggest reduction since at least 1991.
The ECB has cut Interest Rates by 175 basis points since early October, dropping to as low as 2.50% as the region entered this recent recession. The ECB is expected to cut its key lending rate by another 50 basis points or more at its policy meeting on January 15. In the run-up to this gathering, ECB officials have been suggesting that rates could, and likely will come down further in the future.
The EUR plunge against the USD was also pushed by data showing the Euro-Zone private sector services economy shrank sharply in December and firms cut more jobs than expected, pointing to a deep recession lasting for a good part of 2009. The Euro- Zone services sector generates about two-thirds of the single currency area's gross domestic product and the PMI index fell to a record low.
In Germany, the Euro-Zone's biggest economy, a separate data has showed last week that inflation is falling more than expected in December, mainly on falling fuel, food and commodity prices. ECB President Jean-Claude Trichet has declined to give any firm indication on whether further Interest Rate cut bets are justified. But the bank's Vice-President Lucas Papademos said on Sunday that more cuts may be needed to shield the Euro-Zone economy, stressing that deflation was the enemy to be kept at bay.