Euro Falls Against Dollar as Trichet Indicates No Cut to Zero

Feb. 5 (Bloomberg) -- The euro fell to near a two-month low against the dollar after European Central Bank President Jean- Claude Trichet indicated policy makers may not lower interest rates as much as some traders expect to revive the economy.

The ECB kept the main refinancing rate at 2 percent today, according to a statement from Frankfurt. Cutting the rate to zero isn’t “appropriate at this stage,” Trichet told reporters following the decision. The pound rose on speculation the Bank of England will pause in cutting borrowing costs after it reduced its benchmark rate to a record low of 1 percent today.

“Trichet continues to sound cautious and it’s not what the market wants to hear,” said Adam Cole, head of global currency strategy at RBC Capital Markets in London. “If the ECB maintains the cautious tone the euro will remain sold. His insistence on not going to zero rates or using quantitative easing is a negative for the currency in this environment.”

The euro dropped to $1.2800 as of 2:37 p.m. in London, from $1.2849 in New York yesterday. It reached $1.2706 on Feb. 2, the lowest level since Dec. 5. The common currency was at 115.01 yen, from 114.90. The dollar was at 89.86 yen, from 89.43.

The last time the ECB left its benchmark rate unchanged, on Oct. 2, the euro fell 1.3 percent against the dollar. Today’s decision was in line with the median of 53 economists’ forecasts in a Bloomberg survey. The market may be “right” to be on a 50 basis-point cut in March, Trichet said today.