Dollar gains as EU central bank lowers forecast

The euro fell to a two-month low against the US dollar after the head of the European Central Bank (ECB) warned of increasing risks to the European economy, suggesting that the bank will stop increasing interest rates for now.Europes economy is subject to particularly high uncertainty and intensified downside risk, ECB President Jean-Claude Trichet said at a news conference. He said the banks governors had left its benchmark refinancing rate unchanged.The euro fell to a two-month low of $1.3921 around 12:45 p.m. EST in New York, down from $1.4093 late Wednesday. It fell as low as $1.3836 on July 12.The ECB raised its benchmark rate twice since April to stave off inflation. The euros value decreased this summer because of the possibility that an indebted European nation might default on its debt.However, higher interest rates can stymie economic growth by increasing borrowing costs and slowing the flow of credit to consumers and companies. The European Union economy grew at a sluggish 0.2 percent rate in the second quarter. Further rate increases might risk tipping it back into recession.Lower rates can make a currency less attractive to investors. A lower rate means traders make less income on their currency bets.In other trading, the dollar rose to 77.47 Japanese yen, from 77.25 late Wednesday. However, the British pound rose to $1.6003 from $1.5980. And the Swiss franc rose to 87.28 cents from 85.8 cents.The dollar rose 0.7 percent against an index of six major currencies, reaching its highest point since late May. The dollar has risen 4 percent since the beginning of May by that measure. Investors sought safety during a broad stock market sell-off triggered by worries about a slowdown in global growth and a deepening European debt crisis.