Euro drops on Bundesbank rate cut comments

The euro dropped against the dollar Wednesday, reversing Tuesday's gains after Bundesbank comments on a possible eurozone interes rate cut and speculation swirled over a possible German rating downgrade.

The euro dropped to $1.3033, at 2200 GMT, down from $1.3174 late Tuesday.

The euro fell to 127.97 yen, from 128.52, while the dollar rose to 99.19 yen from 97.51.

Comments from Bundesbank chief Jens Weidmann that the European Central Bank could cut interest rates below their current record lows if necessary sent the euro tumbling.

"We might adjust in response to new information," Weidmann said. But he downplayed the utility of such a move.

"I don't think that the monetary policy stance is the key issue."

Weidmann's comment that Europe's recovery could well take a decade also hit sentiment, as did rumors that Germany's AAA credit rating would be cut, according to analysts.

"The ECB is a central bank that likes to prepare the market for any potential changes in monetary policy and that is why Weidmann's comments are so important," said Kathy Lien of BK Asset management.

The dollar's gains came early in the day and got no added support from the slightly improved view of the economy in the Federal Reserve's Beige Book survey of regional activity.

"The Fed's Beige Book failed to prop up the US dollar as the survey continued to point to subdued inflation, and (the Fed policy board) may retain its highly accommodative policy stance throughout 2013 as wage pressures remain contained," said David Song, currency analyst at DailyFX.

The British pound slipped to $1.5241 from $1.5363, while the dollar rose to 0.9326 Swiss francs from 0.9223 francs.