Euro slips to 2-week low on EU growth forecast cuts

London

THE euro fell to a two-week low on Thursday after the European Commission sharply cut its forecasts for economic growth in the euro zone.

Global trade tensions and growing public debt are hastening a slowdown in the largest countries of the bloc, complicating the European Central Bank's (ECB) plans for an interest rate hike this year and weakening the single currency.

The euro has lost around 1.3 per cent over the last week as investors bet the ECB will keep monetary policy accommodative faced by low inflation in the single currency area.

The currency was down 0.2 per cent at US$1.1332, a two-week low.

It dropped earlier in the session after German industrial output unexpectedly fell in December for the fourth consecutive month, underscoring fears about a broader slump in Europe.

"Another day, another piece of terrible German data. EUR/USD risks a move to US$1.1300," said ING's chief EMEA FX and interest rate strategist, Petr Krpata.

Elsewhere, the Australian dollar weakened further on expectations that interest rates will come down this year due to growth risks at home and abroad.

In a remarkable shift from its long-standing tightening bias, Australia's central bank on Wednesday opened the door to a possible rate cut and acknowledged threats to the economy. That saw the Aussie slump 1.8 per cent in its worst one-day decline since June 2016. Investors were caught off-guard because a day earlier the Reserve Bank of Australia steered clear of an easing signal.

On Thursday, the Aussie dollar hovered near a more than one-week low at US$0.7103.

The New Zealand dollar was down 0.3 per cent at US$0.6765 following weaker-than-expected unemployment data on Thursday.

The dollar index, a gauge of its value versus six major peers was up 0.2 per cent at 96.52, hovering close to its two-week high. The index has gained for three consecutive sessions.

Elsewhere, sterling was marginally lower at US$1.2914. The British pound has weakened by 1.3 per cent in February due to Brexit woes.

The Bank of England (BoE) is scheduled to meet later on Thursday and is widely expected to keep interest rates unchanged.

"The BoE won't even consider changing interest rates until the terms to leaving the EU become clear," said Kathy Lien, managing director of currency strategy at BK Asset Management. REUTERS