FOREX-Euro down on warning of possible ECB rate cut

[tritsofme]

NEW YORK, Jan 23 (Reuters) - The euro fell 1 percent against the dollar on Friday after a diplomatic source told Reuters that euro zone ministers attending a Group of Seven meeting next month will say that further strength in the euro could cause the European Central Bank to cut interest rates.

The euro fell from around $1.2685 after the comments, reaching a session low $1.2567 , a loss of 0.7 percent from Thursday's New York close. Late Friday afternoon in New York, the euro traded around $1.2586.

Traders said the euro's fall accelerated as stop-loss orders were triggered around the $1.2600 level, which helped spark a round of dollar-buying against other major currencies.

In London, a European diplomatic source told Reuters that current euro zone monetary policy supports growth, but that external shocks, including those coming from foreign exchange markets, could reduce
growth.

"This does not mean that monetary policy reacts directly to exchange rates but rather to the effects of exchange rates on growth and inflation," the source told Reuters.

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