Finance Markets

November 2, 2006

Euro stronger on ECB comments on inflation

Permalink: Euro stronger on ECB comments on inflation

Filed under: Forex, USD, GBP, Euro, Economy, Yen

The euro benefited from Thursday’s decision by the European Central Bank’s comments that strongly signal that Eurozone interest rates will rise in December. The comments came as the Bank announced that it will leave rates at 3.25 percent this month. The ECB’s president said in the remarks that “strong vigilance” against interest rates is needed. Many analysts are convinced that not only will rates rise in December, but that they will rise again after the first of the year. Strong new manufacturing data out of the Eurozone is one bit of evidence for the expected rate hikes.

By mid-afternoon in New York, the euro had added 0.2 percent against the US dollar, sterling and the Japanese yen, sitting at $1.2770 versus the greenback, at £0.6695 against sterling, and at ¥149.50 in relation to the yen. Before the decision, the euro had declined against the yen, falling as low as ¥148.86.

The US dollar dropped 0.1 percent to ¥116.90 after both the Bank of Japan and Japan’s Finance Minster made remarks that indicated a planned hike in interest rates there if the economy there continues to grow as expected.

The Australian dollar dropped 0.2 percent versus the US dollar to $0.7735 on retail sales that were slower than expected in September. Despite the new data, analysts still expect the Reserve Bank of Australia to hike interest rates by 25 basis points to 6.25 percent when it meets next week.



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