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Tokyo (pte050/07.06.2005/15:40) - Comments made by European Central Bank http://www.ecb.int chief Jean-Claude Trichet and failing economic stability in the euro zone made the euro drop against the yen to a seven-month low.
Trichet remarked at a meeting of central bankers from China, Europe and Japan that the ECB would do 'all it can' to support confidence in the consumer and business markets. He also so said that economic reforms are necessary to boost growth in the euro zone.
A trader at a European brokerage in Tokyo said: "Trichet suggested that maybe he has to do something about interest rates. That means a possible lowering of rates."
If rates were cut, the dollar's interest-rate advantage would be underscored against the euro. It currently stands at 3.0 in the US and at 2.0 in the euro zone.
There was some speculation about a cut in rates from ECB Chief Economist Otmar Issing, who said that a rate cut couldn't be ruled out under policy strategy.
Rates have been kept steady by the ECB for the last two years, despite high unemployment and weak business and consumer confidence.
Last week the euro fell against the dollar after the unsuccessful referendum in France and the Netherlands.
"The turmoil is still affecting the euro," said the brokerage trader. "Even after the U.S. nonfarm payrolls and yesterday's dollar weakness in Asia, the euro still looks pretty heavy on the topside."
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