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Wednesday 20th of August 2008
October 26, 2006

Euro strengthens on ECB comments


by Elaine Frei

The US dollar weakened on Thursday, following the decision by the Federal Reserve on Wednesday to keep interest rates at 5.25 percent for another month. Perhaps even more influential than the decision not to alter the rate were the comments that accompanied the announcement, which was not sufficiently concerned about the possibility of inflation for some analysts and investors. Some analysts expect that the Fed will actually cut rates after the first of the year.

In mid-afternoon trade in New York, the dollar had dropped 0.3 percent against the Japanese yen to ¥118.70 and was 0.5 percent lower versus both the euro and sterling, to $1.2665 and $1.8870 respectively.

The euro was slightly stronger against both sterling and the yen after the president of the European Central Bank said that inflation will remain a risk in 2007 and that the Bank should “remain vigilant” in the face of inflation pressures. Such wording is sometimes seen as a sign that interest rates are likely to rise soon. The euro also got a boost from former US Federal Reserve chairman Alan Greenspan, who said in comments to a group in Washington that both the private sector and central banks are starting to buy euro in preference to the dollar.

The euro added 0.1 percent to £0.6715 in relation to sterling, while it was 0.2 percent higher to ¥150.26 versus the yen.

The Australian dollar was 0.2 percent higher versus the US dollar to $0.7620, but the Canadian dollar was 0.4 percent lower versus the greenback to $1.1280 and the New Zealand dollar fell 1.1 percent to $ 0.6545 against the US currency on the news that the Reserve Bank of New Zealand had kept interest rates at 7.25 percent.

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