TODAYonline

Euro rebounds against dollar after Australian rate cut

Time is GMT + 8 hours
Posted: 7-Oct-2008 18:56 hrs

A foreign currency exchange shop in Islamabad. The euro has risen against the dollar following a cut in Australian interest rates, and a day after the European single currency hit a 13-month low point.

The euro rose against the dollar on Tuesday following a cut in Australian interest rates, and a day after the European single currency hit a 13-month low point, analysts said.

In late morning trade in London, the European single currency climbed to 1.3536 dollars from 1.3523 dollars in New York late Monday.

The dollar edged up to 101.89 yen from 101.87 yen.

A deepening global financial crisis had Monday pushed the euro to 1.3444 dollars -- its lowest point since August 17, 2007.

The euro had also been undermined by the lack of cohesion on a pan-European plan to rescue banks, dealers said.

"The Reserve Bank of Australia's rate cut produced new hope for a pro-active and possibly coordinated interest rate policy. The recovery of the euro against the dollar on the back of this news shows," said Commerzbank analyst Antje Praefcke.

"Every glimpse of hope for and end of the crisis is able to support the euro."

The Reserve Bank of Australia surprised markets on Tuesday by slashing interest rates by 100 basis points to 6.0 percent.

The Australian dollar hit a two-year low point after the announcement, continuing a steep decline since hitting a 25-year high of 98.49 US cents in mid-July. In late Sydney trade the Australian dollar stood at around 73 cents.

Australia's rate cut sparked hopes that other central banks could also lower borrowing costs to try to prop up their ailing markets and economies.

But Bank of Japan governor Masaaki Shirakawa rejected the idea of coordinated interest rate cuts, saying central banks should set policy based on the health of their own economies.

Joint action may result in one country doing something that is not favourable for its own economy, he told a press conference after the Bank of Japan left its key interest rate unchanged at 0.5 percent.

"Each country will make its own decision considering its own conditions," Shirakawa said, adding that there was no need at the moment for coordinated interest rate cuts.

Finance chiefs from the Group of Seven rich nations -- Britain, Canada, France, Germany, Italy, Japan and the United States -- were scheduled to meet Friday in Washington.

The G7 finance ministers and central bank governors would exchange "frank views" on the current crisis, Shirakawa said.

He stressed that the central banks of Japan, Europe and the United States had already been working together to supply emergency funds to the markets in an effort to ease the financial crisis.

"Our system of cooperation has already been established," said Shirakawa.

Sterling rose against the euro, but fell to a 2.5-year low point against the dollar ahead of a scheduled interest rate decision by the Bank of England on Thursday.

In morning trading in London, the euro changed hands at 1.3536 dollars against 1.3523 late Monday, at 138.18 yen (137.75), 0.7805 pounds (0.7746) and 1.5504 Swiss francs (1.5505).

The dollar stood at 101.89 yen (101.87) and 1.1432 Swiss francs (1.1464).

The pound was at 1.7377 dollars (1.7455).

On the London Bullion Market, the price of gold rose to 880.17 dollars an ounce from 875.50 dollars late Monday. — AFP