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NEW YORK: The euro sank to its lowest level of the year against the US dollar on Thursday after the European Central Bank cut its growth forecasts, adding to gloom surrounding the eurozone economy.
The dollar gained on sterling but fell against the yen as the market assessed potentially troubling economic news from Europe and the United States.
At 2100 GMT, the euro was quoted at 1.4321 dollars against 1.4492 late on Wednesday.
The dollar stood at 107.33 yen from 108.27 on Wednesday.
Although stock markets were hammered by weak news from the US retail and job front, the dollar was supported by a survey from the Institute for Supply Management which showed a rise in service sector activity in the United States.
The ISM index of non-manufacturing activity came in at 50.6 from 49.5 in July and 48.2 in June, indicating modest economic expansion with a reading above 50.0.
"The (US) economy appears to be muddling along and the people at the front lines, the purchasing managers, seem to agree with that sentiment," said Joel Naroff of Naroff Economic Advisors.
The outlook in Europe proved more troubling for currency traders.
Both the European Central Bank and the Bank of England announced on Thursday that they had kept their key lending rates unchanged at 4.25 percent and 5.00 percent, respectively.
The decisions were widely expected, but comments by ECB president Jean-Claude Trichet moved the market afterward.
He said the central bank had cut its 2008 growth forecast to 1.4 percent from 1.8 percent, and estimated growth next year at 1.2 percent, compared with its earlier outlook of 1.5 percent.
He gave no indication the bank was ready to lower interest rates to help stimulate the increasingly fragile-looking eurozone economy.
He did take note that the "euro area economy is currently experiencing an episode of weak activity," following a contraction in the second quarter, the 15-nation bloc's first such decline.
"There's definitely an air of panic surrounding the health of national (European) economies," said an analyst at CMC Markets, James Hughes.
Steve Malyon at ScotiaFx said however, "the market still believes a rate cut is forthcoming at some point," and added that news of a decline in German factory orders "underscores that the erstwhile bulwark against a deeper eurozone slowdown is flagging."
The news came after British finance minister Alastair Darling said at the weekend that Britain was arguably facing its worst economic downturn in 60 years.
In late New York trade, the pound was at 1.7681 dollars from 1.7767 on Wednesday. The dollar stood at 1.1087 Swiss francs from 1.1061. - AFP/de
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