The euro struggled to make headway versus the dollar on Thursday, while the yen rose with global economic pressure mounting and investors focused on the European Central Bank's rate decision. Japan's low-yielding currency hit its highest in six weeks versus the euro and four weeks against the dollar, with pressured stocks reflecting escalating fears over the battered banking sector and ongoing risk aversion.
The state of the single currency bloc's economy and public finances moved into sharp focus this week with Standard and Poor's cutting its credit rating on Greek sovereign debt on Wednesday, stoking fears downgrades to other members of the 16-country eurozone could follow.
Wariness over the outlook for Ireland also lingered after Prime Minister Brian Cowen denied a report that he might call on the International Monetary Fund (IMF) for economic help. Data summed up a bleak picture in Europe, showing Germany's economy grew at its slowest pace in three years in 2008. The eurozone's biggest economy contracted by between 1.5 percent and 2.0 percent in the final three months of the year.
The euro overnight index average (EONIA) curve shows a bigger move but that is distorted by the steep fall in overnight rates thanks to central banks having flooded the financial system with cash. See "The ECB's communication and actions diverged in December and this has allowed the market to ignore recent comments about a move towards a more gradual pace of easing and a possible pause," said Lena Komileva, senior G7 economist at Tullett Prebon in London.
The rate verdict is expected at 1245 GMT, while ECB President Jean-Claude Trichet will hold a post-decision press conference at 1330 GMT. The euro was flat at $1.3165, hovering above a one-month low of $1.3093 on EBS the previous day.
It was down 0.3 versus the yen at 117.07 yen, having fallen to six week lows earlier at 116.45 according to Reuters data - fuelled by investors continuing to cut exposure to risk. Yen strength also saw the dollar fall 0.2 percent to 88.88 yen after hitting a four week low earlier.
The Australian dollar briefly dropped to a one-month low against the US dollar and the yen after data showed a steep drop in full-time jobs and a rise in the jobless rate last month, reinforcing the case for further rate cuts. The kiwi fell to 47.20 yen, the lowest since September 2001, before regaining some ground. The Aussie touched a one-month low of 58.18 yen.
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