Euro Falls Versus Dollar, Yen on Speculation ECB Will Cut Rates

Jan. 12 (Bloomberg) -- The euro fell for a second day against the dollar as traders raised bets that the European Central Bank will cut interest rates this week.

The currency also dropped to a one-month low versus the yen on concern that the 16-nation region’s recession will worsen, prompting investors to cut holdings of higher-yielding assets financed in Japan. The difference in yield between two-year German and Japanese government bonds narrowed to 1.13 percentage points on Jan. 9 from 1.21 percentage points on Jan. 8.

“A large portion of the euro’s demise has been predicated on the view that the ECB is falling behind the curve,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “The market has priced in a 50 basis-point rate cut from the ECB.”

The euro dropped to $1.3432 as of 8:45 a.m. in Tokyo from $1.3476 late in New York on Jan. 9. It reached $1.3406, the lowest level since Jan. 6. The currency also declined to 121.10 yen from 121.81 yen. It touched 120.85 yen, the weakest since Dec. 12.

The ECB on Dec. 4 lowered its benchmark rate by 75 basis points to 2.5 percent. Traders have increased bets that the ECB will reduce borrowing costs at its Jan. 15 meeting. The implied yield on the Eonia Jan. 21 forward contract fell to 1.748 percent on Jan. 9 from 1.813 percent on Jan. 8.

“The bias remains for more upside for the yen on the crosses, with risk aversion back in play on continued dismal readings” for the global economy, Trinh said.