Euro Snaps Five-Day Decline Against Dollar Before Rate Decision

By Agnes Lovasz and Stanley White

Sept. 4 (Bloomberg) -- The euro snapped five days of declines against the dollar, rising from a seven-month low, on speculation the European Central Bank will signal today it will resist cutting interest rates any time soon.

The 15-nation currency also climbed from near its weakest in five months against the yen before the ECB's decision, at policy makers will keep the key rate at a seven-year high, according to a Bloomberg News survey. ECB President Jean-Claude Trichet will hold a press conference later. The pound rose against the euro and the dollar as economists forecast inflation at more than double the Bank of England's target will prevent policy makers from lowering interest rates at a meeting today.

``Recent ECB rhetoric clearly points to Trichet adopting a hawkish tone, keeping the door on possible rate cuts firmly shut,'' analysts led Russell Jones, the head of global fixed- income and currency research in London at RBC Capital Markets, wrote in a research note. ``Any hint of dovishness would come as a surprise.''

The euro rose to $1.4513 as of 9:34 a.m. in London, from $1.4498. It touched $1.4385 yesterday, the lowest since Jan. 22. Against Japan's currency, the euro climbed to 157.48 yen after yesterday reaching 156.26, the weakest since March 31. The yen traded at 108.50 per dollar from 108.29.

ECB policy makers will hold the main refinancing rate at 4.25 percent today, according to all but one of the 53 analysts surveyed by Bloomberg. The decision is due at 1:45 p.m. in Frankfurt and Trichet's press briefing will start at 2.30 p.m.

Euro's Decline

The euro has dropped 5.3 percent versus the dollar since Aug. 7, when Trichet said growth in the countries using the euro will be ``particularly weak'' through the third quarter.

``You can't buy the euro as a long-term investment,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The ECB will acknowledge that the economic outlook has worsened, and that will accelerate the euro's decline.'' The euro may weaken to $1.4410 today, Soma forecast.

The pound was at $1.7825, from $1.7768 yesterday, when it reached a two-year low of $1.7668. It strengthened to 193.27 yen, after touching 191.49, the weakest since January 2005. It rose to 81.46 pence per euro, from 81.60, after dropping to a record low of 81.88 pence earlier.

The Bank of England will keep its target rate at 5 percent today, according to all 61 economists surveyed by Bloomberg.

The pound stayed higher even after HBOS Plc said today U.K. house prices fell for a fifth month in August from a year earlier as banks withheld finance for new homes and consumer confidence waned. The average cost of a home dropped 10.9 percent in the three months through August, Britain's biggest mortgage lender said. Prices declined 1.8 percent on the month.

Rate-Cut Bets

Traders pared bets the ECB will cut rates in coming months, interest-rate futures indicated. The implied yield on the Euribor futures contract expiring in March rose 5 basis points to 4.83 percent, 58 basis points above the central bank's key rate. The yield averaged 18 basis points above the ECB's rate from 1999 to August 2007.

``We're looking at upticks in the euro as a chance to sell,'' Mike Moran, a senior currency strategist at Standard Chartered Plc in New York, said in an interview with Bloomberg Television. ``The rest of the world is catching up with a U.S. slowdown.''

The South Korean won climbed the most of any currency in the world, rising to 1,125.75 per dollar from 1,148.60 yesterday, when it touched a four-year low of 1,159.05. South Korea doesn't face a crisis similar to the 1997 meltdown, Finance Minister Kang Man Soo said yesterday on KBS TV in Seoul. The won is Asia's worst-performing currency this year.

Dollar Index

The ICE future exchange's Dollar Index, which gauges the greenback against the currencies of six major U.S. trading partners, fell 0.2 percent to 77.912, the first drop in six days. It touched 78.310 this week, the highest level since October, on speculation a decline in oil prices will support economic growth in the world's largest energy consumer.

Gains in the dollar may be limited by speculation a deteriorating labor market will restrain consumer spending.

ADP Employer Services will say U.S. companies reduced workers by 30,000 in August after adding 9,000 workers the previous month, according to a Bloomberg News survey of economists. The private sector report is due at 8:15 a.m. New York time today.

U.S. nonfarm payrolls fell by 75,000 jobs in August, faster than the previous month's decline of 51,000, according to a Bloomberg survey before the Labor Department report due tomorrow.

Business across most of the U.S. was ``slow'' last month, the Federal Reserve said yesterday in its regional economic survey, known as the Beige Book.

Technical Charts

Technical analysis shows the euro may fall to $1.4360 in the next few days, said Masashi Hashimoto, a currency analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly listed bank.

The common European currency is poised to decline as its average price over the past 200 days is starting to fall, he said. First support at $1.4360 is a 38.2 percent retracement of the euro's rise from its low of $1.1640 on Nov. 15, 2005 to its record high of $1.6038 reached on July 15, according to a series of numbers known as the Fibonacci sequence.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net