Investing.com - The euro rose to session highs against the dollar on Tuesday after the European Commission cut its growth and inflation forecast for the euro zone, adding to pressure on the European Central Bank to implement additional policy measures to bolster growth.
EUR/USD was up 0.32% to 1.2523, off the two-year trough of 1.2437 struck on Monday.
The EC cut its forecast for economic growth in the 18 nation euro zone to 0.8% this year, from 1.2% in the spring. It expects the economy to grow by 1.1% in 2015, down from 1.7% previously.
The commission said it expects inflation in the euro area to remain below the ECB’s target of close to but just below 2% until at least 2016. It also warned that unemployment levels will remain at their current high levels for longer than previously hoped.
The forecasts were dragged down by lower growth in the euro zone’s three largest economies, Germany, France and Italy, with Italy expected to fall back into a recession this year.
In the wider European Union the commission now sees growth of 1.3% this year, down from 1.6% in the spring and it expects growth of 1.5% in 2015, below its previous forecast for 2%.
The commission said the downward revisions were due to the weakening European economy and the impact of geopolitical crises, but added that it could still see a “gradual recovery” looking ahead.
The euro was lower against the firmer yen, with EUR/JPY sliding 0.30% to 141.86, off Monday’s seven month highs of 142.54.
The yen was also higher against the dollar, with USD/JPY down 0.55% to 113.36, backing off the seven-year peaks of 114.20 struck in the previous session amid profit taking.
Demand for the greenback continued to remain underpinned after the Bank of Japan’s surprise stimulus move on Friday fuelled expectations that the ECB will soon follow suit.
The US dollar index, which tracks the performance of the greenback against a basket of six major currencies, was down 0.23% to 87.25, holding below Monday’s four-year peaks of 87.54.