FOREX-Euro falls on prospect of future ECB rate cut

Mon Mar 4, 2013 4:15am EST

Related Topics

* Euro dips vs dlr, not far from Friday's 2-1/2 month low

* Single currency hurt by weak euro zone data

* Growing bets on ECB rate cut this week

By Anooja Debnath

LONDON, March 4 (Reuters) - The euro fell against the dollar on Monday as concerns about the weak euro zone economy fuelled speculation the European Central Bank could cut interest rates in the coming months.

Although market consensus is for the ECB to keep rates on hold on Thursday, some strategists say poor manufacturing survey and unemployment data last week could prompt bank chief Mario Draghi to hint at future cuts.

"The euro is down on a general risk-off mood as markets look for a little bit more safe haven. Draghi could be more dovish and there could be a rate cut this week. If not, he could signal something is in the offing," said Jane Foley, senior currency strategist at Rabobank.

The euro was down 0.1 percent on the day at $1.3005, off Friday's low of $1.2966 set on trading platform EBS, its lowest since Dec. 11. A reported options barrier at $1.3000 could act as near-term support.

The fallout of Italy's inconclusive election last week continued to weigh on the euro, with analysts concerned that without a stable government, the euro zone's third largest economy will be unable to pass reforms required to get its borrowing and debt under control.

"Italy's lack of a government adds to the weight on the euro from disappointing data which will mean Draghi can no longer dismiss rate cut talk," said a trader at an Australian bank, adding that the euro could touch $1.27/$1.28 in the coming weeks.

Markets will keep an eye on a meeting where the Eurogroup of euro zone finance ministers will discuss a bailout for Cyprus on Monday, though no final deal is expected.

The gloomy euro zone data contrasted with a jump in U.S. manufacturing and this helped push the dollar to a six-month high of 82.509 against a basket of currencies on Friday . It last stood at 82.334, up 0.03 percent on the day

Broad U.S. spending cuts that automatically kicked in on Friday and threaten to dampen economic growth have so far not hurt the U.S currency.

In fact, currency speculators' bets in favour of the dollar surged in the week ending Feb. 26.

On the other hand, they bet against the euro after last week's poor February business survey data and with unemployment in the currency bloc hitting a new high in January.

YEN MOVES

The yen showed limited reaction to comments from Haruhiko Kuroda, the Japanese government's nominee as the next Bank of Japan governor, who set out aggressive policy ideas on Monday. The dollar was up 0.1 percent at 93.63 yen .

"The comments that have come out today are in line with expectations and have not triggered renewed selling of the yen. They didn't contain any big disappointments either," said a trader from a Japanese bank in Bangkok.

Kuroda, president of the Asian Development Bank and an advocate of aggressive monetary easing, would replace incumbent Masaaki Shirakawa, who is due to leave office on March 19.

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