Euro Trades Near 7-Month Low Versus Dollar Before ECB Meeting

By Stanley White and Ye Xie

Sept. 4 (Bloomberg) -- The euro traded near the lowest level against the dollar in more than seven months on speculation the European Central Bank will signal it's concerned about growth while keeping interest rates on hold.

The 15-nation currency traded near a five-month low against the yen before an ECB policy meeting later today. The British pound was close to a 3 1/2-year low versus the yen and reached a record low against the euro on speculation the Bank of England will keep interest rates unchanged today as it battles slowing growth and accelerating inflation.

``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 traded at $1.4510 at 8:34 a.m. in Tokyo from $1.4498 yesterday, when it touched $1.4385, the lowest since Jan. 22. The yen was little changed at 157.18 per euro after yesterday reaching 156.26, the strongest since March 31. Japan's currency traded at 108.31 per dollar. The euro may decline to $1.4410 today, Soma forecast.

The pound was at $1.7754 from $1.7768 yesterday, when it reached a two-year low of $1.7668. It fell 0.2 percent to 192.13 yen, near 191.95 yen, the strongest since January 2005.

Sterling also dropped to an all-time low of 81.88 per euro today. British consumer confidence stayed at a four-year low in August, a Nationwide Building Society survey showed yesterday, adding to the case for interest rate cuts. The Bank of England will keep its target lending rate at 5 percent today, according to all 61 economists surveyed by Bloomberg News.

`Particularly Weak'

ECB President Jean-Claude Trichet and his colleagues will hold the main refinancing rate at 4.25 percent today, according to all but one of the 53 analysts surveyed by Bloomberg. The euro has dropped 5.4 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.

European retail sales decreased 0.4 percent in July, the European Union's statistics office said in Luxembourg yesterday. The median forecast of 25 economists surveyed by Bloomberg was for a 0.1 percent increase. Investment by companies slid 1.2 percent, the first decline in five years.

Economic Slowdown

``There has been nervousness that the slowdown in the U.S. is spreading to the rest of the world, including Europe,'' said Rebecca Patterson, global head of foreign exchange in New York at J.P. Morgan's Private Bank, a JPMorgan Chase & Co. unit that helps wealthy clients manage their assets.

Japan's currency increased 1.8 percent yesterday to 13.72 against South Africa's rand and as much as 0.9 percent to 191.95 versus the pound, as investors pared carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark interest rate compares with 12 percent in South Africa and 5 percent in the U.K.

``Investors are exiting large carry positions,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online trading firm Gain Capital in Bedminster, New Jersey. ``People are reallocating assets away from high yielders.''

Dollar Index

The ICE future exchange's Dollar Index, which gauges the greenback against the currencies of six major U.S. trading partners, touched 78.651 yesterday, the highest level since October, on speculation a decline in oil prices will support economic growth in the world's largest energy consumer.

Crude oil for October delivery decreased 0.3 percent to $109.36 a barrel yesterday after reaching a five-month low of $105.46 on Sept. 2. Gold for December delivery reached the two- week low of $793.70 an ounce.

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.

U.S. nonfarm payrolls fell by 75,000 jobs in August, faster than the previous month's decline of 51,000, according to the median forecast of 74 economists surveyed by Bloomberg News. The report from the Labor Department is due tomorrow.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netYe Xie in New York at yxie6@bloomberg.net;