The euro steadied against the dollar today, after falling sharply the previous day due to a downgrade of Russia's sovereign rating, as investors awaited a rate decision by the European Central Bank.
The euro came under heavy pressure last night after Fitch Ratings downgraded Russia's sovereign rating, underscoring worries that a sharp downturn in Eastern Europe could hit the euro zone economy hard.
The euro was also hurt by Kazakhstan's central bank's decision to devalue the Central Asian country's currency by about 18 per cent yesterday.
"Heightening worries about economies and currencies in eastern and central Europe such as Russia and Kazakhstan tend to spur euro selling and yen buying," said Masafumi Yamamoto, head of foreign exchange strategy in Japan for the Royal Bank of Scotland, in a research note.
The euro is likely to stay weak against the yen, he added.
The euro was little changed from late US trading yesterday at $1.2844. It slid more than 1.4 per cent yesterday, basically erasing the gains it had made on Tuesday.
Market players are reluctant to hold onto positions over a long time period and have tended to close out positions relatively quickly, said a trader for a Japanese trust bank, adding that the environment was not ripe for taking risks.
The euro has fallen roughly 8 percent so far this year, and a fall below $1.2706 on trading platform EBS would take the single European currency to a two-month low.
Against the Japanese currency, the euro fell 0.2 per cent to 114.56 yen.
The dollar eased 0.2 per cent to 89.22 yen.
The ECB is widely expected to keep interest rates at 2 per cent when it announces its rate decision later tpday, with most market players expecting the central bank to lower rates by 50 basis points in March.
Market players will be watching for any hints from ECB President Jean-Claude Trichet that the ECB may slow the pace of future easing, after more than halving the key euro zone rate in the last four months.
Reuters