Euro gains on ECB rate action

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In the eurozone on Thursday, the euro gained value after the European Central Bank voted to raise its main refinancing rate by a quarter point to 2.5 percent. At the same time, the ECB president made comments that indicated that there will be more rate hikes to come this year. He said that the current rate hike will only “contribute” to keeping inflation in check.

The ECB has predicted that inflation this year will be around 1.9 to 2.5 percent, replacing its December forecast of inflation in the 1.6 to 2.6 percent range. The Bank also predicted that the eurozone economy will grow by 1.7 to 2.5 percent this year, somewhat more than its earlier estimate of 1.4 to 2.4 percent growth for 2006.

The euro gained 0.9 percent on the US dollar to $1.2016, while it added 0.8 percent in relation to sterling, to £0.6862. The shared currency was also up in relation to several Scandinavian and Eastern European currencies, and it gained 1 percent to ¥139.60 versus the Japanese yen.

Meanwhile, the US dollar was weaker due to low yields on US government bonds as well as investor worries about recent weak economic data out of the United States. Besides dropping in relation to the euro, the greenback was also lower in relation to the Swiss franc, dropping 0.9 percent to SFr1.3012, and it hit a new 14-year low versus the Canadian dollar, down 0.3 percent to C$1.1317. The dollar did manage to hold steady at $1.7512 in relation to sterling, which in turn dropped 0.8 percent to SFr2.2782 versus the Swiss franc.