U.S. dollar drops against euro in market shift

Monday, 14 March 2011

NEW YORK (AFP) -– The U.S. dollar fell against the euro Tuesday after recent gains as the market adjusted positions ahead of an expected sharp cut in eurozone interest rates as part of European responses to market turmoil.
The euro rose to 1.2710 dollars around 2200 GMT from 1.2607 dollars in New York on Monday.

Despite losing to the euro, the dollar firmed to 93.27 yen from 93.21 yen a day earlier.

The euro's strength stemmed from increased measures of European central banks to spur growth, experts said.

Many EU countries were due to present stimulus plans in the coming days and weeks. Traders also anticipate a hefty interest rate cut by the European Central Bank later this week.

It would be the third interest rate cut in less than two months by the ECB. There is speculation that this week's cut could be bigger than the 50 basis point reduction seen in early November that disappointed markets.

""The euro is stronger against the U.S. dollar ... driven by the increased measures of central banks to spur growth, and firmer equity markets that have eroded the safety allure of the dollar,"" said Jordan Eburne of PNC Bank.

U.S. and European shares rallied Tuesday a day after punishing losses as investors looked past the gloom that provoked Monday's rout, but analysts say the rally remains fragile. Wall Street was lifted by hopes for an auto sector rescue by the U.S. government and General Electric's better-than-expected business update while European bourses rose on a pledge by European Union ministers to implement economic stimulus measures.

The Dow Jones Industrial Average rallied 270.00 points (3.31 percent) to close at 8,419.09, coming off a horrific 679-point loss on Monday.

European investors drew encouragement from news that finance ministers from all 27 European Union endorsed plans for a stimulus plan totaling 200 billion euros, equivalent to 1.5 percent of EU gross domestic product.

In London, the FTSE 100 index of leading shares closed 1.41 percent higher at 4,122.86. In Paris, the CAC 40 was up 2.35 percent at 3,152.90 and in Frankfurt the DAX jumped 3.12 percent to 4,531.79.

""More stimuli to the financial markets should add some support to the equity markets, which has been translating to a weaker dollar when investors are lured out of Treasuries,"" Eburne said.

The euro last week lost ground after official data showed that 12-month inflation in the 15-country eurozone sharply fell in November.

The decline set the stage for a steep cut in interest rates by the European Central Bank on Thursday, dealers said.

The greenback's weakness was also a reflection of the U.S. Federal Reserve running out of room to lower interest rates, with suggestions it might start to look into other strategies to spark the economy such as buying Treasury securities.

In late New York trade, the dollar rose to 1.2063 Swiss francs from 1.2059 on Monday.

The British pound however firmed to 1.4906 dollars from 1.4884 dollars a day earlier.


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