LONDON (AFP) — The euro rose against the dollar on Tuesday while the Canadian dollar slumped after the Bank of Canada (BoC) surprised traders by cutting interest rates for the first time in three and half years.
The US dollar was weakened by comments made by Gulf Arab leaders about the peg of their currencies to the sliding US unit.
Though a two-day summit of the Gulf Cooperation Council (GCC) concluded with leaders pledging to maintain the peg, analysts said there were signs that some members wanted to follow Kuwait's example and use a basket of currencies instead.
In late European trading, the euro stood at 1.4757 dollars, up from 1.4666 late on Monday in New York.
Elsewhere, the dollar fell to 109.80 yen from 110.44 late Monday.
The US dollar rose to a session high of 1.0152 Canadian dollars after reaching a low earlier in the day of 0.9991 Canadian dollars. The Canadian dollar has risen by 25 percent this year against its US counterpart.
The BoC cut interest rates by a quarter basis point to 4.25 percent, saying global financial market difficulties and expectations of slower US growth meant its worries on inflation had subsided.
Forex markets also concluded that the BoC's accompanying statement made another interest rate cut in January likely.
Analysts said the surprise decision would help ensure that the Canadian dollar would not appreciate too sharply against the US dollar as the US Federal Reserve continues with its monetary easing.
"In order to keep the Canadian dollar from spiralling even higher, the BoC chose the lesser of two evils by cutting interest rates and thereby taking out some insurance against its currency becoming fundamentally misaligned," said Bank of New York senior currency strategist Michael Woolfolk.
Meanwhile at the GCC meeting in Doha, Gulf Arab leaders wrapped up their two-day summit after agreeing to maintain their currencies' peg to the US dollar.
The six also agreed to maintain a 2010 target date for the launch of a single currency.
Speculation of a de-pegging increases demand for free floating currencies such as the euro on the basis that the Gulf states could revalue their currencies against it and diversify their foreign reserves out of the dollar and into these other units.
Attention now turns to interest rate decisions in the eurozone and Britain on Thursday and then monthly US employment figures due on Friday.
The Federal Reserve is expected to cut rates again next week.
Investors are watching for the result of a meeting of the European Central Bank (ECB) on Thursday but most analysts expect no change to the central bank's key rate of 4.00 percent.
In Britain, the Bank of England is also expected to leave its main lending rate steady at 5.75 percent on Thursday.
In European trade on Tuesday, the euro changed hands at 1.4757 dollars, against 1.4666 late on Monday, at 162.03 yen (161.99), 0.7173 pounds (0.7095) and 1.6452 Swiss francs (1.6533).
The dollar stood at 109.80 yen (110.44) and 1.1176 Swiss francs (1.1274).
The pound was at 2.0577 dollars (2.0665).
In London, the price of gold firmed to 797.50 dollars per ounce from 784.25 dollars late on Monday.
Source : http://afp.google.com/article/ALeqM5jBt8kqOxQLWCUvNIFJMBxOgwmiSQ
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