Tuesday April 22, 2008 - 23:35:52 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro rallies through $1.60 as ECB eyed
(Updates prices, adds quotes)
NEW YORK, April 22 (Reuters) - The euro rose against the
dollar on Tuesday and traded above $1.60 for the first time
since its 1999 inception amid growing expectations that the
European Central Bank's next move may be an interest rate
ECB Governing Council Member Christian Noyer said the bank
would do what is needed to bring inflation back to its target
of just below 2 percent, adding that the central bank would
move rates if needed.
That followed comments from Governing Council member Yves
Mersch, who said the ECB has to ask itself each month whether a
rate rise is needed to control inflation. For more, see
European bond prices declined after the policy-makers'
comments, widening the yield advantage of German bunds over
U.S. Treasuries with similar maturities, further boosting
demand for the euro.
"Interest rate differentials are really favoring the euro
right now," said Camilla Sutton, a currency strategist at
Scotia Capital in Toronto. "The ECB is gearing up to fight
The comments, combined with a lackluster reading on U.S.
existing home sales in March, helped push the European currency
through the key $1.60 level.
The euro <EUR=> traded as high as $1.6019, according to
Reuters data, but later gave back some its gains. In late
trading in New York, it was 0.5 percent higher at $1.5980.
Rising inflation stemming from soaring food and energy
prices came firmly into view as U.S. crude oil hit a historic
high of $119.90 CLc1.
This gave added impetus to hawkish talk from ECB
policy-makers, who are determined to contain the impact of
rising prices, which may further propel the euro, analysts
"The latest bout of euro strength or dollar weakness can be
partially attributed to the sharp rise in oil prices. This
continual rise in inflationary pressures raises the risk of a
rate hike," said Kathy Lien, a currency strategist at
DailyFx.com, in a research note to clients.
"Although $1.60 is an important level, it will not mark the
end of euro strength and dollar weakness," she said.
The dollar traded down 0.2 percent at 103.00 Japanese yen
<JPY=> and 0.4 percent lower against a basket of six major
currencies at 71.329 .DXY on Tuesday.
The euro's rally came after an earlier slide on news that
Germany's BdB banking association had taken control of
Duesseldorfer Hypothekenbank (DUOGg.F: Quote, Profile, Research) and planned to sell it
after the property lender ran into problems linked to the
current financial crisis.
Still, the ECB is seen keeping rates at least at a six-year
high of 4.0 percent for a while. In contrast, markets expect
the Federal Reserve to lower benchmark U.S. rates further from
the current 2.25 percent at a policy meeting on April 29-30.
U.S. economic data on Tuesday showed the housing market
remains soft, with existing home sales falling 2.0 percent last
month to 4.93 million units. [ID:nN22297285]
Elsewhere, the Canadian dollar fell after the Bank of
Canada cut its benchmark interest rate by a half percentage
point as expected. The U.S. dollar last traded up 0.2 percent
at C$1.0071 <CAD=>.
(Additional reporting by Lucia Mutikani in New York; Editing
by Jonathan Oatis)
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