The euro dropped to its lowest this year against the dollar and the yen on speculation the European Central Bank will this week suggest it's prepared to cut interest rates to help entrench a recovery in the region. German consumer confidence was unchanged this month, a survey from Gfk AG market research showed. ECB President Jean- Claude Trichet said last week that the bank may pare its growth estimates unless consumer spending picks up. ``Trichet will probably pave the way for a future rate cut at the ECB's press conference,'' said Niels Christensen, a currency strategist in Paris at Societe Generale SA. ``The risks for the euro are to the downside.''
Against the dollar, the euro fell as low as $1.2045, its weakest since Dec. 4, and was trading at $1.2092 as of 8:47 a.m. in London from $1.2118 late Friday in New York, according to EBS prices. Versus the yen, the euro slid to 127.68, the lowest since November, from 128.52. A reduction in the ECB's benchmark rate from 2 percent, is unlikely at Thursday's meeting, according to economists surveyed by Bloomberg News. Of 36 polled Thursday and Friday, all but two forecast no change. Eight said they expect a cut by June. The 12 percent gain in the euro against the dollar in the past year has, in part, been spurred because interest rates in the 12-country region are double those in the U.S. The Federal Reserve this month kept its benchmark rate at 1 percent.
`Euro Will Suffer'
ECB board member Gertrude Tumpel-Gugerell said on Friday that Europe's recovery may be delayed and the bank is ready to pare interest rates if needed. ``The ECB is preparing the market for a cut,'' said Jake Moore, currency strategist in Tokyo at Barclays Capital Inc., which predicts the central bank will lower its key rate by a quarter percentage point this week. ``The euro will suffer.'' The yen rose to its highest in more than six weeks against the dollar in Europe after the London-based Times newspaper reported Japan will end sales of its currency because the nation's economic recovery is accelerating. Japan's currency was trading at 105.59 as of 8:15 a.m. in London from 106.02 late on Friday in New York.
The world's second-biggest economy no longer needs a weaker yen to bolster exports, the Times said, citing unidentified Bank of Japan officials. Finance Minister Sadakazu Tanigaki denied the article, calling it ``bold speculation,'' Kyodo News said. Employment and business confidence reports this week may add to signs of growth after the economy expanded at its fastest annual pace in 13 years last quarter. Signs the economy is recovering has helped push the yen up 14 percent against the dollar in the past 12 months.
Looking to Tankan
The quarterly Tankan index of business sentiment among large manufacturers, compiled by the BOJ, on Thursday will probably rise to 10, from 7 last quarter, according to a separate survey of economists by Bloomberg News. ``Everything we're seeing from Japanese data is showing the economy is on an upswing,'' said Harvinder Kalirai, head of market research in Sydney at State Street Corp., the world's largest custodian of assets, with $9.4 trillion. ``Investors have already been thinking there's going to be less intervention. The yen is going to continue to rise.'' The BOJ sold 10.5 trillion yen in the two months ended Feb. 25, about half of 2003's record annual total. The central bank buys or sells yen at the behest of the Ministry of Finance. A MOF official, speaking on condition of anonymity, declined to comment on the Times report. The ministry determines currency policy, not the Bank of Japan, the official said.
The ministry will sell yen to prevent it from gaining beyond 105 per dollar after April 1, when most Japanese companies start a new business year, Citigroup Inc. said, citing its own survey. Of the 57 corporate and investor clients surveyed by the world's biggest financial services company, 79 percent said Japan will try to keep the yen at a certain level after the fiscal year begins. When asked the level, 45.6 percent said 105 is the line the ministry will seek to ``defend,'' Citigroup said. ///www.bloomberg.com