LONDON, Dec 5: The euro bobbed around parity against the dollar on Thursday as traders awaited the decision of European Central Bank (ECB) policymakers, who are seen slashing interest rates in an effort to revive the fortunes of the ailing euro zone economy.
The single European currency slipped to 0.9998 dollars from 1.0007 late on Wednesday in New York.
The dollar was being traded at 125.33 yen against 124.64 late on Wednesday.
Analysts said remarks Tuesday by ECB President Wim Duisenberg, who said inflationary pressures in the euro-zone were easing, while growth prospects remained far from rosy, indicated a cut in interest rates was virtually a done deal.
The question for most economists and ECB watchers is not whether the guardian of the euro will cut rates, but by how much.
The majority believe the central bank will slash its main refinancing rate by 0.5 points to 2.75 per cent, and expect such a move to benefit the single currency.
“Market reaction to a 50-basis-point cut is likely to be positive for the euro initially,” said ABN Amro currency strategist Rob Hayward.
BNP Paribas chief currency strategist Hans Redeker — another to have pencilled in a half-point cut — also predicted the euro would push higher given the likely benefits for European capital markets and euro zone growth.
But WestLB analyst Michael Klawitter warned that the euro had already priced in a deep rate cut and could struggle to push much higher in the wake of the ECB’s latest decision.
Among other leading currencies, sterling was steady ahead of an interest rate decision by the Bank of England.
In contrast to its euro zone counterpart, the British central bank is forecast to keep its main lending rate on hold at 4.0 per cent.
Meanwhile the Swedish kronor edged higher — to 9.0630 krona to the euro from 9.0647 late Wednesday — after Sweden’s central bank unexpectedly cut its key interest rate by 0.25 points to 3.75 per cent earlier Thursday.
The euro was changing hands at 0.9998 dollars from 1.0007 late on Wednesday in New York, 125.25 yen (124.76), 0.6370 pounds (0.6366) and 1.4730 Swiss francs (1.4731).
The dollar was being quoted at 125.33 yen (124.64) and 1.4737 Swiss francs (1.4720).
The pound was at 1.5695 dollars (1.5697), 196.67 yen (195.67) and 2.3124 Swiss francs (2.3116).—AFP