By Naomi Tajitsu
TOKYO, Feb 12 (Reuters) - The euro slipped on Tuesday,
struggling as traders speculated whether slower European growth
will warrant a European Central Bank interest rate cut in the
coming months, even as inflationary pressures continue.
Trading activity slowed in the afternoon as market
participants awaited data on German investor sentiment due later
in the day to get a better sense of the health of the European
economy.
"Expectations for an ECB rate cut are likely to grow each
time the market sees weakness in economic data as well as in
earnings reports from European banks," said Etsuko Yamashita,
chief economist at Sumitomo Mitsui Banking.
"But the euro's slide against the dollar will be rather
gradual until the ECB clearly changes its policy stance towards
rate cuts. The market is not sure of it yet."
The euro <EUR=> slipped to the day's low of $1.4497, inching
towards a two-week low of $1.4440 hit last week, before pulling
back to around $1.4515, little changed on the day.
It also fell against the yen <EURJPY=R> to 154.87 yen in
early trade. The single currency recovered to around 155.15 yen,
but remained 0.1 percent lower on the day.
Germany's ZEW index of investment confidence for February,
due at 1000 GMT, is expected to fall to -45.0 this month from
-41.6 in January.
The U.S. currency <JPY=> was little changed at 106.90 yen.
ECB RATE VIEW
Other currencies were little changed as Tokyo traders
returned from a market holiday that had followed a weekend
meeting of Group of Seven finance ministers in Tokyo, where the
world's biggest economies turned more pessimistic on the global
economy.
While the gathering yielded few big surprises to the currency
market, traders have been focusing on the acknowledgment by
European officials that growth in the region is slowing, although
inflation risks remain high.
This has heated up speculation that the ECB may cut rates in
the next few months, after the Federal Reserve slashed interest
rates by a dramatic 125 basis points last month to 3.0 percent,
the lowest in nearly three years.
"Expectations are growing for the ECB to cut rates," said
Hideaki Inoue, forex manager at Mitsubishi Trust and Banking,
adding that such a move may come as early as March.
"If we get more comments that support that view, the euro
could fall more."
ECB officials have suggested that they were hesitant to take
a cue from the Fed's rate cuts, with President Jean-Claude
Trichet at the weekend pointing out that there had been neither
calls to raise nor to cut rates at the central bank's policy
meeting last week, when it held rates at 4.0 percent.
A Reuters poll taken last week showed that economists are
anticipating a 25 basis point cut in the ECB's benchmark rate by
June, followed by another cut in the third quarter.
European finance ministers on Monday said that record-high
inflation in the euro zone, while temporary, was of extreme
concern, and vowed to help the European central bank stop price
hikes from spilling over into higher wages.
Comments from St. Louis Fed Bank President William Poole on
Monday that the U.S. economy appears likely to avoid a slowdown
did little to boost the dollar, as market participants expect the
Fed to cut rates again at its next meeting in March in an effort
to avoid a recession.
(Additional reporting by Satomi Noguchi; Editing by Chris
Gallagher)
