(Recasts, adds details, changes byline and dateline,
previous LONDON)
By Vivianne Rodrigues
NEW YORK, Feb 8 (Reuters) - The euro remained under
pressure on Friday and on track for its biggest weekly fall
versus the dollar in 1-1/2 years amid growing expectations the
European Central Bank will cut interest rates later this year.
The ECB kept its key interest rate at 4 percent on Thursday
but President Jean-Claude Trichet dropped a threat to act
preemptively against rising prices and accepted that unusually
high uncertainty in markets may hurt the real economy.
Investors were reluctant to take big currency positions
before a weekend meeting of Group of Seven finance officials in
Tokyo. The summit may yield some comments on currencies, though
foreign exchange is not expected to take center stage.
"It became clear this week that the economic slowdown has
been moving East and that Europe is not insulated," said Mark
Meadows at Tempus Consulting in Washington D.C. "The euro
suddenly came under pressure and it may continue so for a
while."
By early morning in New York, the euro was little changed
at $1.4491 <EUR=>, down around 2.2 percent since Monday and on
track for its biggest weekly fall since June 2006. The euro was
down 0.15 percent at 155.50 yen <EURJPY=>, while the dollar
edged down 0.2 percent to 107.28 yen <JPY=>.
Trade was relatively quiet, as many Asian players are away
for the Lunar New Year break. Financial markets in Tokyo will
be closed on Monday for a national holiday.
Sterling was up 0.2 percent versus the dollar <GBP=> and
euro <EURGBP=>, recovering some of Thursday's losses sustained
after the Bank of England cut rates by 25 basis points to 5.25
percent and signaled that it would likely stick with a path of
gradual monetary easing.
Although the euro is now some 5 cents -- or 3 percent --
below last November's record high versus the dollar, it is
still more than 10 percent higher than a year ago and on the
ECB's trade-weighted basis it is holding just below all time
peaks set in January <EUREER=ECBF>.
Many European officials have expressed concern about the
euro's strength, with French trade minister Henri Novelli
saying on Friday that lower interest rates in the region would
help companies struggling under the impact of a stronger
currency. This view has been backed by weak export data from
France and Germany this week.
"There's clearly a perception that the ECB now has an
easing bias but they are unlikely to cut rates as early as
March," said Michael Klawitter, FX strategist at Dresdner
Kleinwort in Frankfurt.
However, European officials are not expected to secure the
support of the other Group of Seven countries for some kind of
joint statement on the euro's strength or dollar's weakness.
"The reality in fact is for a rerun of October's
communique, i.e. no explicit mention of major currencies but
calls for yuan flexibility to increase. A greater focus will be
put on the risks to global growth," said ING in a client note.
A G7 source said discussions on foreign exchange rates will
be less important this time than those on policy responses to
the deteriorating international economic climate.
In October, the finance ministers stressed the need for an
accelerated appreciation of the Chinese yuan while repeating
that excess volatility and disorderly movements in exchange
rates are undesirable for economic growth.
(Additional reporting by Simon Falush in London; Editing by
Andrea Ricci)
