Euro drops on mooted interest rates cut

<p>The euro is down against the dollar today.</p>

The euro has fallen against the dollar today (June 2nd) on speculation the European Central Bank (ECB) could reduce interest rates when it meets later in the week.

Various policy options are up for debate at the ECB's monthly meeting this week, with a cut in interest rates likely to be towards the top of the list of items on the agenda.

The euro was down after inflation readings from Germany were subdued, while data released by the Commodity Futures Trading Commission on Friday showed speculators grew short positioning on the euro to 16,633 contracts from 9,220.

During the European session today, the euro fell by 0.2 per cent to hit $1.3595, hovering slightly above the three-month low of $1.3586 it reached on Thursday.

ING currency strategist Petr Krpata told Reuters: "With market participants unwilling to be brave enough to take against-consensus euro long positions ahead of the meeting, and the potential for an upside surprise in US data, we expect euro/dollar to remain under pressure."

"The euro should move back closer to $1.3600 level, while the 200-day moving average of $1.3644 is now an important level to watch."

Impending data

Investors will be keeping an eye on the release of eurozone inflation data, which is set to come out tomorrow, while the health of the single currency could also be affected by upcoming US manufacturing data.

RTFX Fund Management portfolio manager Francesco Scotto said: "The three-month risk reversal shows that the market prefers a bearish scenario. Traders are expecting a delivery from Mario Draghi and a decision will probably put an end to the speculation on when the ECB will start quantitative easing."

Both the ECB and the Bank of England held interest rates at their May meetings, but there is pressure on both organisations to announce a change in the near future as a result of the improved state of both the European and the UK economies in recent months. However, UK interest rates are expected to be held at their current record low of 0.5 per cent until 2015.

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