TOKYO - The euro was close to two-month lows against the dollar in Asia today ahead of inflation data in Europe that could support the case for lower interest rates in the region, dealers said.
The euro slipped to $1,2834 in Tokyo morning trade, down from 1,2846 in New York late yesterday. The euro slipped to 114,73 yen from 114,92. The dollar was flat at 89,46 yen. Markets were expecting data to show producer prices in the 16-member eurozone fell for a fifth straight month in December, dealers said.
There was speculation that the data might nudge the European Central Bank to cut its key lending rate on Thursday, despite earlier hints from governor Jean-Claude Trichet that the bank would probably delay any move until March.
"Softer inflation would signal to the bank that there is still room for cuts," said Societe Generale forex strategist Yuji Saito. He said the bank may lower interest rates by 50 basis points from its current level of 2,0%. The ECB has reduced its key lending rate four times since October but official borrowing costs in the eurozone are still higher than the near-zero levels in the United States and Japan.
"There are growing expectations among market participants that the ECB will lower rates. If it doesn’t, it will be negative for the euro. The ECB has been the slowest to implement policies" to fight recession, said Saito.
Recent data have shown the eurozone’s economies are weakening while several European countries have seen their sovereign credit ratings slashed. The Bank of England is widely expected to slash its lending rate by 0,5% on Thursday to a record low of 1,0% in the face of deepening worries about the problems of the British economy.
Lower interest rates tend to weigh on currencies because investors favour high yielding assets.
