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Euro rebounds with eyes on ECB interest rate cut

Euro rebounds with eyes on ECB interest rate cut

The euro rebounded in Asia yesterday from earlier one-month lows but dealers said the recovery could soon fizzle out with the European Central Bank poised to slash interest rates.
The euro rose to US$1.3275 in Tokyo afternoon trade from US$1.3180 in New York late Tuesday. The euro gained to 119.88 yen from 117.79. The U.S. dollar climbed to 89.72 yen from 89.36.
Speculators took profits after driving the European currency down to one-month lows earlier in the week, dealers said.
But analysts said the euro could come under renewed pressure if the ECB gradually lowers eurozone interest rates in the coming months, reducing the currency's yield advantage over the dollar and yen.
"We continue to expect the euro-dollar to head lower in the coming months and see potential for a poor U.S. earnings season to drive the major lower," Barclays Capital analysts said.
The ECB has already lowered its key rate by 175 basis points since October to the current level of 2.50 percent, but eurozone borrowing costs remain much higher than in the United States and Japan where they are close to zero.
Markets were looking for a rate cut of 75 basis points from the ECB when it meets today, along with hints of further cuts in February and March, said Sumitomo Mitsui Banking Corp. chief strategist Daisuke Uno.
Lower interest rates tend to make a currency less attractive to investors searching for the best possible yields.
Market players were awaiting the Fed's Beige Book report on the health of the U.S. economy due out later in the day, followed by a raft of other indicators later this week.


Updated : 2021-04-17 17:34 GMT+08:00