The euro dipped below 90 US cents in Asia Tuesday on fears of the economic impact of higher European Central Bank (ECB) interest rates, dealers said.
Most economists expect the ECB to raise its key "refi" refinancing rate when the bank's policy-setting governing council meets on Thursday.
But investors were fretting that the euro-zone economy was not robust enough to withstand higher borrowing costs, said Bank of Tokyo-Mitsubishi dealer Kiyoshi Kuzuhara.
"Investors sold the euro because they fear the European Central Bank's interest rate hike expected on August 31 will cause a negative impact on the European economy," Kuzuhara said.
The head of Germany's Bundesbank, Ernst Welteke, fuelled speculation of higher ECB rates last Friday by expressing concern at inflation trends and the euro's continued weakness.
The euro traded at $0.8987 around 2:00 p.m. (0500 GMT), down from $0.9020 in New York and $0.9028 in Tokyo late Monday.
Against the yen, the euro was quoted at 95.82, down from 95.93 in Tokyo late Monday.
The yen was meanwhile drifting higher against the dollar, but its rise was limited by a fall in Tokyo share prices and the collapse of a small life insurer.
The yen traded at 106.63-65 to the dollar at 2:00 p.m., up from 106.85 to the dollar in New York, but down from 106.26 to the dollar in Tokyo late Monday.
"Hopes for an economic recovery are strengthening among Japanese investors, given the Nikkei (share) index's recovery yesterday to the 17,000-point level," said Fuji Bank dealer Wako Ogawa.
The Tokyo Stock Exchange's headline index closed above 17,000 on Monday for the first time since July 17, but fell 96.83 points, or 0.6 percent, to end Tuesday morning at 17,084.29.
"Although there is a persistent yen-buying trend in the market, foreign investors became reluctant to buy the yen following today's drop in the Nikkei index and the collapse of Taisho Life Insurance yesterday," said Kuzuhara.
Debt-ridden Taisho Life became only the fourth Japanese life insurer to fail since World War II when the government suspended operations late Monday at the fraud-hit company.
Investors took little notice of Japan's latest jobless rate, which leveled off at 4.7 percent in July, the dealers added. — (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)
