* ECB downgrades growth view, stoking rate-cut speculation
* ECB, Bank of England keep rates steady
* Euro zone's Juncker: Euro still effectively overvalued
(Recasts, adds comments and details, updates prices)
By Wanfeng Zhou
NEW YORK, Sept 4 The dollar rallied on Thursday
to its highest level against the euro this year after the
European Central Bank cut its growth outlook for the euro zone,
stoking speculation of lower interest rates in the region.
The euro deepened losses after the chairman of euro zone
finance ministers, Jean-Claude Juncker, said the single
currency was still effectively overvalued despite its recent
fall. For more details, see [ID:nL4400641] [ID:nBRM000070].
Euro zone economic uncertainty was "particularly high," the
European Central Bank president, Jean-Claude Trichet, said
after the ECB left its interest rates at 4.25 percent on
Thursday. But Trichet cautioned that inflation remains high and
the risks are to the upside. For more details, see
"Trichet maintained his unambiguously hawkish language on
inflation, but markets are largely focusing on the ECB's growth
downgrades for the euro zone," said Ashraf Laidi, chief FX
strategist at CMC Markets U.S. "This bolsters the possibility
of an eventual ECB easing in the second half of 2009."
The ECB staff now forecasts growth in the euro zone for
2008 at 1.1 percent to 1.7 percent, for a midpoint of 1.4
percent, and at 0.6 percent to 1.8 percent in 2009, for a 1.2
Three months ago, the ECB had predicted economic growth of
about 1.8 percent this year and 1.5 percent in 2009. See
In midday trading in New York, the euro EUR= tumbled 0.9
percent on the day to trade at $1.4362, after falling as low as
$1.4327 earlier, the lowest level since December 2007,
according to Reuters data.
The euro also fell against the yen to its lowest level
since March and last traded at 154.83 yen, down 1.3 percent on
The ICE Futures U.S. Dollar index .DXY, which tracks the
value of the greenback against a basket of six major
currencies, rose 0.6 percent to 78.520.
Adding to gains in the dollar versus the euro were comments
by the International Monetary Fund that the single currency was
on the strong side despite some weakening and the greenback was
now closer to its medium-term equilibrium level. For more, see
The dollar JPY=, however, fell 0.5 percent against the
yen to trade at 107.80, hurt by sharp losses on Wall Street.
"The focus remains on risk and risk aversion levels remain
high," said Ron Simpson, director of FX currency research at
Action Economics in Tampa, Florida. "U.S. asset prices are on
the decline and dollar/yen is reacting to the risk back drop."
U.S. PAYROLLS AHEAD
On the U.S. economic front, the dollar had limited reaction
to reports showing private-sector job contraction of 33,000
last month, roughly in line with forecasts, while the number of
people filing for jobless benefits rose by 15,000 in the latest
week. See [ID:nN03319921] [ID:nN03319921].
A separate report showed the U.S. service sector expanded
slightly more than expected in August. See [ID:nN04520521].
Investors will have a better idea of how the U.S. labor
market is weathering the economic slowdown on Friday when the
Labor Department releases its August nonfarm payrolls report.
"The renewed decline in August ADP suggests deterioration
in August payrolls following the smaller-than-expected loss of
76,000 private jobs in July," Laidi said.
Elsewhere, sterling GBP= fell 0.2 percent to $1.7716,
surrendering early gains following the Bank of England's
decision to leave interest rates unchanged at 5.0 percent.
The euro was last down 0.7 percent at 81.07 pence
Central bank rate decisions were the theme of the day, with
Sweden's Riksbank raising rates by 25 basis points to 4.75
percent in a widely expected move.
The euro EURSEK= recently traded down 0.1 percent against
the Swedish crown at 9.4648 crowns.
(Additional reporting by Nick Olivari; editing by Leslie