Euro lower against the U.S. dollar

The euro stayed lower against the U.S. dollar on Tuesday after improved activity in the U.S. service sector offered a bulwark against the common currency.

The 13-nation euro bought US$1.2928 in morning European trading, barely up from US$1.2927 in New York late Monday. The British pound rose to US$1.9629 from US$1.9596 on sentiment the Bank of England may surprise markets with another unexpected rate increase when it meets Thursday.

The dollar was up to 120.46 Japanese yen from 120.35 yen on Monday as speculation that the Group of Seven might discuss the currency's recent weakness when it meets Friday and Saturday in Essen, Germany.

"Until the G-7 is over, yen-bullish sentiment could persist," said Osao Iizuka, head of foreign-exchange trading at Sumitomo Trust & Banking. "If the dollar breaks below the key 120 mark, it could sink further into the low 119s, or even to Y118.50."

The euro stands to gain, however, if the European Central Bank sets a hawkish tone for the upcoming months when it meets Thursday. The ECB is expected to keep its interest rate unchanged at 3.5 percent, but set the stage for an increase in March, reports AP.

Last week, the Federal Reserve left interest rates unchanged at 5.25 percent for the fifth straight time.

Higher interest rates, a weapon against inflation, support a currency by making assets denominated in that currency more attractive to investors.

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