The euro slipped from earlier gains against the dollar on Monday after a report saying the European Central Bank is forming a consensus to cut its deposit interest rate further into negative territory in December. The dollar edged up on the news, rebounding from losses earlier in the session that saw the euro again pushing $1.08. The report further backed notion of a divergence between the US and European central banks on monetary policy, with the Fed largely expected to raise interest rates in December and the ECB expected to further reduce deposit rates.
"If you want to get a bigger bang for your buck, a broader euro weakening story rather than one that just (weakens the euro) against the dollar, then the ECB has to do some of the work as well," said Alan Ruskin, global co-head of FX research at Deutsche Bank. "I think it all fits with the divergence story." The report by Reuters said four governing ECB members disclosed that discussions leading up to December are not about whether the bank will further cut rates, but by how much, with some members advocating cutting the deposit rate as low as -0.7 percent.
The ECB cut its deposit rate to -0.2 percent in September 2014 and said it could not go any lower. However, cuts by Swiss and Danish central banks to -0.75 percent have shown that deeper cuts are possible. The euro rose from its Friday lows, when it had fallen to $1.07045, its weakest since mid-April. But then it slipped back to trade at $1.0742 by midmorning in New York.
The euro has lost almost 6 percent versus the dollar in the two weeks since the ECB indicated that it could expand its asset-purchase program and further cut its deposit rate. The dollar index, which tracks the greenback against a basket of major currencies, pushed back up near a 6-1/2-month high after posting earlier losses. The index was last down 0.08 percent at 99.089.
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