TOKYO: The euro faced selling pressure against the dollar on Friday after plunging in New York in response to the European Central Bank's surprise decision to cut interest rates and warn of a long period of low inflation.
The dollar managed to claw back some of the losses seen late on Thursday as better-than-expected US economic growth data fuelled speculation the Federal Reserve would soon wind down its stimulus drive stimulus programme.
In Tokyo midday trade, the euro bought $1.3406, compared with $1.3414 late in New York where it had briefly plunged below $1.33. The unit is well down from the levels above $1.35 seen in Tokyo earlier Thursday.
It also changed hands at 131.65 yen in Tokyo, against 131.50 yen on Wall Street but still well below levels above 133 yen on Thursday in Asia.
The dollar edged up to 98.17 yen against 98.02 yen in New York . However, the greenback fetched about 98.60 yen the day before.
ECB policymakers took financial markets by surprise Thursday by cutting its central or refinancing rate to a record low of 0.25 percent from 0.50 percent.
The move came after data showed eurozone inflation slowing to a four-year low of 0.7 percent last month, raising the spectre of deflation that could lead to a vicious circle of falling prices, declining wages and output.
Bank president Mario Draghi also said the 17 countries that share the euro "may experience a prolonged period of low inflation", which could have a severe impact on debt-addled economies,
"Concerned that the eurozone 'may experience a prolonged period of low inflation', ... Draghi suggested there could be further policy action ahead, using 'a whole range of available instruments'," National Australia Bank said.
Cutting interest rates tends to weigh on a currency as investors chase higher returns elsewhere.
The greenback saw a slight rebound from a sell-off in US trade after the Commerce Department said the economy grew a better-than-expected 2.8 percent in July-September. The figure was well above the 1.9 percent projected by analysts and representing the strongest pace in a year.
Evidence that the economy is staging a recovery has heightened speculation that the Fed will start winding down its $85 billion a month stimulus programme sooner rather than later.
Dealers are now looking to US jobs data due later in the day for a better handle on the strength of the economy.
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