FRANKFURT, Germany — The euro fell against the U.S. dollar Friday as investors priced in the likelihood of interest rate cuts and a further withering of the economy in Europe.
The 15-nation euro bought US$1.2772 in European morning trading, down from the US$1.2852 late Thursday in New York. The dollar hit its highest point against the euro in nearly two years Wednesday at US$1.2726.
The British pound also slid to US$1.5957 Friday from US$1.6124 late Thursday in New York, marking the lowest point for the pound against the dollar since September 2003.
As recently as July, the pound was trading above US$2 before turmoil in the financial sector and lower British interest rate expectations fuelled a sharp decline. Around that same time the euro was trading above US$1.60.
While the Bank of England and the European Central Bank have plenty of room to reduce borrowing costs from the current 4.50 per cent and 3.75 per cent, respectively, the U.S. Federal Reserve, for example, has much less room because its base rate stands at 1.50 per cent. Still, observers expect the Fed could also cut its rate at the November meeting.
Higher interest rates increase returns on investments, supporting currencies.
In other trading, the dollar bought 94.94 Japanese yen Friday compared with 96.05 Japanese yen the night before.
