Euro hits 1-month low vs dollar on ECB rate doubts

Euro hits 1-month low vs dollar on ECB rate doubts

Rika Otsuka / Reuters

Tokyo: The euro hit a one-month low against the dollar on Tuesday, 14 August, as the European Central Bank’s hefty cash injections in the money market cooled expectations for a September interest rate rise in the euro zone.

The yen rose across the board as investors further trimmed positions in risky carry trades on persistent jitters about bank and fund losses from problems in the US subprime mortgage sector.

The low-yielding Japanese currency has been widely used by speculators as a cheap source of funds to buy higher-yielding currencies in carry trades.

The yen jumped against the New Zealand and Australian dollars, while heading towards a four-month high versus the euro, as trade thinned by summer holidays saw volatility that exaggerated market moves.

Activity was subdued in Tokyo as many Japanese investors and traders are away for “obon" summer holidays this week.

Traders do not expect higher-yielding currencies to rebound for the time being, saying speculators are unlikely to start building risky carry trade positions again in the short term.

“Market players find it difficult to do carry trades now as market volatility remains high," said a trader at a Japanese trust bank.

The euro struck a fresh one-month low against the dollar at $1.3602 on electronic trading platform EBS in early Asian trade before recovering to $1.3615.

The single European currency fell to 160.70 yen from 160.95 yen in late US trade on Monday. It hit a four-month low of 159.98 yen last week.

The yen’s rise against the euro and other higher-yielding currencies pulled down the dollar against the yen.

The dollar was down 0.2% at 118.00 yen, edging towards a four-month low of 117.19 yen hit late last week.