The euro fell to its lowest level in a month this morning on speculation that the Federal Reserve will only cut rates by 25 basis points next week. At 0830, the euro was trading at USD1.1636, having dropped as low as USD1.1585 at one point. The single currency was also lower against sterling, at 69.33p, with the pound supported by the relatively attractive level of UK interest rates. Following a sharp rise in the New York Empire factory survey and consumer price data indicating that deflation may not be as big a threat as earlier believed, analysts are scaling back talk of a 75 or 50 basis point reduction.
"The US dollar made further gains against other major currencies overnight on continuing optimism about US economic recovery," said Geraldine Concagh, senior economist at AIB Treasury. "This follows the brighter economic data in recent sessions which has led to a reassessment about the size of expected US interest rate cuts." A number of analysts, however, pointed out that this week's inflation figures were boosted by one component of the consumer price index and that the bigger than expected increase should not dissuade the Fed from cutting rates by 0.50pc. //www.fxcentre.com