LONDON, Aug 21: The euro edged higher against the US dollar while the Japanese yen firmed against most major currencies on Tuesday amid speculation that the US Federal Reserve would soon cut its key Fed Funds rate.The euro edged up to $1.3484 in late European trade, from $1.3474 in New York late on Monday.

The dollar declined to 114.49 yen, from 114.86 yen on Monday.

The US central bank’s decision Friday to cut its discount rate sparked rumours of an emergency cut in its main interest rate ahead of a scheduled meeting next month.

“The Fed’s statement -- which said the central bank is ‘prepared to act as needed’ -- has led everyone to believe that it will cut interest rates,” said Neil Mellor at the Bank of New York.

The high degree of speculation in foreign exchange markets has led to trading on rumours rather than fundamentals, leaving markets “hostage to good central bank newsflow,” Mellor said.

“The market is very excited about the prospect of a rate cut and an optimism premium is starting to build into asset markets.”

Elsewhere, the dollar edged upwards against some other major currencies as higher-yielding rivals such as the pound and the Australian dollar came under renewed pressure.

On the London Bullion Market, the price of gold slipped to $657.50 per ounce, from $659.50 late on Monday.—AFP