October 23, 2001	Tuesday	Shaba'an 5, 1422

LONDON, Oct 22: The euro lost ground on Monday as investors bet that the European Central Bank (ECB) would disappoint the market when it meets to discuss interest rates later this week.

The single European currency fell as low as $0.8969, from $0.8996 earlier in Tokyo. The dollar meanwhile bought 121.67 yen from 121.15 yen earlier.

The highlight this week will be the ECB meeting on Thursday, noted Commerzbank economist Kamal Sharma. The market remains split on the verdict but favours slightly a 25 basis point (quarter percentage point) rate cut.

The ECB’s capacity to disappoint continues to remain high and this could set the tone for a weaker euro in the days ahead, he said.

Investors had been hoping for the ECB to follow the US Federal Reserve’s bold lead this year in trying to keep economies afloat in the choppy waters of a global downturn.

But where the Fed has cut rates nine times, sometimes by a half-point, the ECB has only trimmed borrowing costs four times.

The euro has gradually been giving up ground against the dollar (because) although we have seen US policy makers do everything they can with fiscal stimuli and interest rates, what have you got from Europe? said Jane Foley, a currency expert with Barclays Capital.

You won’t get much on the fiscal side because they are worried about budget deficits, and on the easing side you haven’t had much because they are worried about inflation, Foley told AFP. There is a lot of scepticism about policy in Europe and that is what the price is reflecting.

The euro’s latest slump was precipitated by a sharp dip in German business confidence unveiled on Friday by the Munich-based Ifo institute. ECB inactivity after such a clear downturn in the corporate climate would not be popular with investors.

The perceived inflexibility of the ECB has not helped the euro’s cause, said Merrill Lynch’s senior currency strategist Neil MacKinnon.

Foley predicted that the ECB would wait until November before shaving rates and forecast that the euro would only be fetching 87 US cents by year-end.

It has been quite obvious all year: investors do not really want any more euros than they already have, she told AFP.

A year ago the market was excited that the US economy was going to turn lower and the euro would break higher. It never did.

We have had so many false dawns and it seems that investors do not want to take on more euro positions, she said.

The euro was being traded at $0.8975 from $0.8987 late Friday in New York, 109.15 yen (108.90), 0.6269 pounds sterling (0.6261) and 1.4764 Swiss francs (1.4771).

The dollar stood at 121.67 yen (121.15) and 1.6444 Swiss francs (1.6432).

The pound was being traded at 1.4318 dollars (1.4346), 174.15 yen (173.83) and 2.3540 Swiss francs (2.3579).

The price of an ounce of gold on the London Bullion Market fell to 278.50 from 279.15 on Friday.—AFP