Investing.com - The euro fell to fresh session lows against the dollar and the yen on Tuesday after a senior European Central Bank official said the bank could use negative interest rates to counter the euro’s higher exchange rate.
EUR/USD was last trading at 1.3787, down 0.39% for the day.
The pair was likely to find support at 1.3748, last Thursday’s low and resistance at 1.3800.
The drop in the euro came after ECB governing council member and Bundesbank chief Jens Weidmann said a negative deposit rate could be an appropriate way to address the impact of strong gains in the euro.
He also said it was not out of the question for the ECB to buy loans or other assets from banks to fight deflation, indicating a softening of the Bundesbank’s stance on quantitative easing.
Separately, ECB Governing Council member Josef Makuch said the bank is prepared to take decisive steps if necessary, adding that many policy options are available, including adding liquidity.
The euro slipped against the dollar earlier after a report showed that the German Ifo business confidence index dropped to 110.7 in March from 111.3 in February. Analysts had expected the index to tick down to 111.0.
The expectations component of the index weakened as concerns over the impact of the Crimea crisis weighed, but the current assessment component continued to improve, rising to the highest level since April 2012.
Investors were looking ahead to U.S. reports on consumer confidence and new home sales later in the session for further indications on the strength of the recovery.
The dollar ended Monday’s session lower against the euro after lackluster U.S. manufacturing report for March indicated that the economy is still struggling to gain traction in the wake of a weather induced slowdown.
The single currency was also lower against the yen and the pound, with EUR/JPY down 0.20% to 141.18 and EUR/GBP down 0.44% to 0.8350.
In the U.K., official data on Tuesday showed that the annual rate of inflation fell to a more than four-year low of 1.7% in February, from 1.9% in January.
January was the first time in more than four years that the U.K. inflation rate fell below the Bank of England’s 2% target. The decline in inflation will give the Bank of England leeway to keep rates on hold for longer, even as the economy continues to make a rapid recovery.