Euro at seven month low against the dollar ahead of European Central Bank meeting

Benchmark share indices in Japan, South Korea and Australia all rose around 0.2 per cent, though the broadest index of Asia-Pacific shares outside of Japan was nearly flat due to the dollar’s strength.

Market participants expected trading would remain subdued for the rest of the session, with an early post-Thanksgiving close for USA markets on Friday extending the holiday lull.

The euro was down 0.1 percent at $1.0615, having skidded on Wednesday to $1.0565, its lowest since mid-April, before recovering.

“We expect the ECB will cut the deposit rate by more than the market expects next week”, Mansoor Mohi-uddin, senior markets strategist at Royal Bank of Scotland Group in Singapore, told Bloomberg News.

Short-term euro zone interest rates fell to record lows as markets interpreted an European Central Bank debate about two-tier deposit rates as signaling the intention for an aggressive cut.

The euro’s three-month overnight indexed swap (OIS) rate fell to a new low around minus 0.2810 percent, nearly 15 basis points below the current fixing level of the Overnight Eonia rate.

Karakama said a comparable situation was the European Central Bank imposing negative interest rates in June previous year, which caused a prolonged downturn by the euro. Against the yen, it touched a seven-month low of 129.77 EURJPY=R before edging back to 130.21.

The yen was little changed against the dollar at 122.58 per dollar, showing no response to a series of Japanese economic data including the jobless rate, which unexpectedly fell to a two-decade low of 3.1 percent.

Wads of euro banknotes are stacked in a pile at the GSA Austria (Money Service Austria) company’s headquarters in Vienna July 22, 2013.

The dollar index was higher at 99.831 after reaching an 8 1/2-month high of 100.170, after strong United States manufacturing output and business investment plan numbers on Wednesday reinforced the case for a rate increase.

Auto stocks were also in demand, with the sector index up 2.3 percent, benefiting from weakness in the euro. “True, it is already heavily shorted but I expect the euro to fall towards parity with the dollar”, said a trader at a Japanese bank.

The International Monetary Fund (IMF) is expected to announce on Monday whether it will include the yuan, also known as the renminbi, in its $280 billion basket of currency reserves, known officially as Special Drawing Rights, or SDR.

Oil prices fell, after six days of gains, as concerns that escalating violence in the Middle East would disrupt supply faded, and the focus returned to a persistent market glut.

A solid quarterly report from chipmaker Infineon and a rebound in metal prices also provided support.