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Friday, 11 May, 2001, 16:32 GMT 17:32 UK
Euro weaker after rate cut
the euro
The euro is now hovering at around 87 cents to the dollar
The euro fell to three-week lows against the US dollar on Friday after the European Central Bank (ECB) surprised the markets and cut interest rates by a quarter point to 4.5% the day before.

The currency was hovering around 87 cents to the dollar in late trade on Friday, its poorest showing since mid-April.

A clutch of weak inflation statistics added to the euro's misery.

Germany, the Netherlands and Spain were among those countries seeing a leap in their annual inflation rates, well breaching the ECB's official target of 2%.

On Thursday the ECB had justified its rate cut with an easing of inflationary pressures.

'Horrible inflation data'

Germany, Europe's largest economy, reported annual inflation at 2.9% year-on-year - a seven year-high.

This jump was driven by dramatic rises in the costs of fuel and food.

In the Netherlands, Dutch consumer prices jumped 4.9% year-on-year, their highest rise for nearly two decades.

Spain also saw a shock rise in its annual inflation rate, beating forecasts to hit 4% year-on-year, from 3.9% the month before.

Even France saw headline inflation reach the ECB's official ceiling of 2% year-on-year, according to the latest figures.

"The horrible inflation data made the context of the recent ECB rate cut even more ridiculous and this is weighing on the euro," said Steve Barrow, currency strategist at Bear Stearns in London.

Surprise rate cut

The rate cut on Thursday was only the second in the ECB's history.

For months, it had insisted that it was more concerned about shielding the 12 nations in the eurozone from inflation than worries about a global economic slowdown.

The rate cut was the result of lower inflationary pressures and a fall in consumer credit growth, ECB president Wim Duisenberg said after the decision on interest rates was announced.

Friday's figures stand in stark contrast to this assessment.

Dollar strong

The euro's loss was the dollar's gain on Friday.

But even when the action takes place closer to home, that still has not harmed the dollar.

The US Central Bank, the Federal Reserve, has cut rates by a full 2 percentage points this year, with US rates now at 4.5%.

The Fed's last rate cut - by half a percentage point in April - sent share prices soaring and the dollar also gained ground.

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See also:

10 May 01 | Business
Eurozone rate cut surprise
18 Apr 01 | Business
US interest rates cut
09 May 01 | Business
Sharp jolt for German economy
04 May 01 | Business
Eurozone slowdown
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