LONDON (AFX) - The euro was off earlier lows but remained soft in midday trade on the weaker growth outlook for the euro zone, dealers said.
Dealers said European Central Bank chief economist Otmar Issing's warning in a newspaper interview that growth prospects are not as bright as earlier thought are pushing the euro lower.
Issing told the Wall Street Journal Europe that risks to growth have increased to the downside since the end of last year.
Dealers interpreted his comments as signalling a possible end to the ECB's wait-and-see policy on interest rates.
"The currency market is taking a dim view of the comments, and the euro has weakened, so that it's hovering around 0.89 usd," Halifax economist Steven Pearson said.
Dealers said a speech by Issing at 5.00 pm today will be closely followed for clues as to whether the ECB is planning to cut rates in what would be its first move since Oct 2000.
However, 4cast foreign exchange specialist Paul Bednarczyk said central bank watchers will require a signal from ECB president Wim Duisenberg before being convinced that a rate cut is imminent. He said a rumour that the ECB is planning an emergency meeting today appears to be ill founded.
Elsewhere, the dollar/yen rate crashed through the pivotal 124 usd barrier on ongoing worries about the Japanese economy.
"We would actually have expected the yen to be a fair bit weaker than this, given the plight of the economy," Bednarczyk said.
"We can see it testing 130 usd without too much trouble, which I think the Americans would be quite laid back about," he said.
From the U.S., the main news will be this afternoon's weekly initial jobless claims, the most up-to-date indicator of labour market activity.