Euro falls after Trichet leaves rates pat

NEW YORK: The euro fell against the dollar Thursday as the European Central Bank and Bank of England resisted pressures to hike interest rates.

The European Central Bank kept its main interest rate at 1.25 percent while signaling a rate hike next month. Meanwhile in London, the Bank of England left its key interest rate unchanged at a record low of 0.50 percent.

At 2100 GMT the euro was changing hands at $1.4509, down slightly from $1.4575 on Wednesday.

The common European currency was stable against its Japanese counterpart, at 116.42 yen against 116.41 the previous day, while the dollar was up to 80.31 yen from 79.87.

"Trichet's remarks this morning prompted a classic 'buy the rumor, sell the fact' reaction in the foreign exchange market, with players taking profit on long euro positions," said Michael Woolfolk at the Bank of New York Mellon.

The euro's weakness was also caused by continuing concern over the indebted Greek economy and how a second bailout package can be arranged.

Fresh strikes hit Athens Thursday and hopes for growth in its ailing economy were dashed as it came under increasing pressure from its international creditors to accelerate reforms.

With the government locked in marathon talks on a new wave of austerity measures, Greece's eurozone peers indicated that a second rescue deal was on the way, with sources talking of an overall package of around 90 billion euros, including Greek asset sales.

The drop in the euro, which had been trading higher earlier in the day "may also be a reflection of some disappointment that Trichet refused to give any signal as to rate rises beyond July," said Richard Driver, analyst at Caxton FX.

The dollar got a boost when data showed the US trade deficit shrank sharply in April, with exports hitting a record and imports falling.

The US Commerce Department reported the trade deficit in goods and services fell to a seasonally adjusted $43.7 billion from $46.8 billion in March. That was the smallest gap in the year to date.

But the politically sensitive shortfall with China widened to $21.6 billion, almost 20 percent more than the March level.

At 2100 GMT the dollar bought 0.8414 Swiss francs versus 0.8358 the day before. The pound rose to $1.6365 from $1.6398.

Copyright AFP (Agence France-Presse), 2011