Euro shows strength

Story link: Euro shows strength

The euro rose in relation to most major currencies during the week ending March 3. It was up 1.3 percent to $1.2031 versus the US dollar, gained 1 percent to ¥140.12 against the Japanese yen, and rose 0.8 percent in relation to sterling, to £0.6859.

The euro’s success came as the European Central Bank once again raised interest rates by a quarter point, to 2.5 percent, after having hiked rates by the same amount in December. Comments from ECB board members made it clear that interest rates will go up again in the foreseeable future. Besides raising rates, the ECB also revised its forecasts for growth and inflation for the year, predicting that both will be higher than previously expected.

Accordingly, Goldman Sachs raised its forecast for eurozone interest rates at the end of the year from 2.5 percent to 3 percent. Meanwhile, analysts at Citigroup attributed at least part of the euro’s advances to the narrowing yield spread between two-year government bonds in the eurozone and the United States.

The Japanese yen had a mixed week, as it gained 0.3 percent on the US dollar over the week, to ¥116.43 but lost 0.1 percent to sterling, to end the week at ¥204.12.

The yen had a strong showing early in the week, when comments from Japanese government officials seemed to be more acquiescent to Bank of Japan policy moves to abandon its zero interest rate policy. However, when new data showed the core inflation rate for January at 0.5 percent, making some analysts believe that the Bank would make its first moves as soon as next week, Prime Minister Junichiro Koizumi issued a statement saying that deflation had not yet been defeated in the Japanese economy.

While the US dollar saw gains on Friday as new data from the service sector was more positive than had been expected, it still was down over the week as a whole. The greenback lost 0.5 percent on the week to sterling, to $1.7537, and it ended the week down 1.3 percent to C$1.1343 in relation to the Canadian dollar, a 14-year low. The strong Canadian dollar was being driven by strong economic growth and the expectation of another rise in interest rates to come.