Euro drops to two-month low

The euro fell to a two-month low against the dollar in Asian trade Tuesday, weighed down by growing worries about the problems of the European economies, dealers said.

The euro fell to 1.2662 dollars in Tokyo morning trade, the lowest level since early December, down from 1.2856 in London on Monday, when US markets were closed for a public holiday.

The euro slid to 116.89 yen from 117.20. The dollar rose to 92.30 yen compared with 92.01.

Markets were waiting for Germany's ZEW business confidence survey which was expected to underscore the gloom engulfing the eurozone's biggest economy.

"Europe remains the weakest among the major economies and is unlikely to pick up any time soon. The euro is likely to be sold off again after the data," said Hachijuni Bank forex strategist Sho Komamura.

The problems of Central and Eastern Europe were also weighing on the euro because of the close economic ties with the eurozone, dealers said.

The pound dropped to 1.4200 dollars from 1.4349 as worries mounted about the health of the British economy and banking sector.

The Confederation of British Industry, the country's top business grouping, warned that the domestic economy would shrink by 3.3 percent in 2009.

Data due out later in the day are expected to show inflation weakening in Britain as the recession deepens.

Dealers were also waiting to see how US markets would react to Congressional approval of a huge economic stimulus plan when they reopen after a long weekend.

The US Big Three automakers were also expected to submit plans to the government on how to turn around their troubled businesses.

Despite its ballooning budget deficit, the US government is pushing ahead with significant stimulus spending to revive the economy, noted Komamura.

"Therefore it is unlikely that the automakers will suddenly go bankrupt. If their plans are solid, that may boost the dollar," he said.

Source: AFP

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