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Tuesday 02nd of December 2008
July 6, 2006

Euro gains on ECB comments


by Elaine Frei

The euro grew stronger on Thursday on new signals from the European Central Bank that interest rates will be rising again. While the ECB kept interest rates at 2.75 percent for the present, remarks from the Bank’s governor were widely read as meaning that there will be a 25-basis point hike in rates at the Bank’s August meeting. One clue, according to analysts, is that the Bank’s council will physically meet in Frankfurt in August, as opposed to the teleconferenced meeting that had been planned.

Directly after the remarks, the euro added 0.5 percent to $1.2783 versus the US dollar. By the middle of the day in New York trade, the shared currency had weakened somewhat but was still 0.3 percent higher at $1.2758 to the dollar. Likewise, the euro hit a new all time high of ¥147.41 against the yen right after the comments, but by noon in New York, the euro was 0.2 percent weaker in relation to the yen, at ¥146.85.

The yen gained 0.5 percent to ¥115.10 versus the US dollar. The Japanese currency’s strength was helped by comments from a Japanese official that the missile tests in North Korea would not have an effect on any Bank of Japan decisions concerning interest rates. It is expected by most analysts that the Bank will end its zero interest rate policy at next week’s meeting.

Sterling was mixed, dropping 0.2 percent to €0.6944 in relation to the euro but adding 0.2 percent to $1.8358 versus the US dollar. The Bank of England voted to once again keep UK interest rates at 4.5 percent.

In Iceland, a decision by the central bank to raise interest rates to 13 percent, a gain of 75 basis points, sent the krona down 0.5 percent to IKr75.60 in relation to the US dollar.

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