Euro strengthens on interest rate speculation

Story link: Euro strengthens on interest rate speculation

The euro gained on the US dollar and the yen on Monday after officials with the European Central Bank made statements indicating that they are concerned about inflation.

Recent comments from Juergen Stark and Erkki Liikanen showed that they do not agree with Bank staff predictions that say inflation will fall below the Bank’s 2 percent upper limit in 2009 and prompted speculation that the ECB will hike interest rates soon.

The shared currency traded at €1.4715 to the US dollar in early afternoon trade in New York, while it took ¥164.3738 to buy a euro.

Dollar declines were limited , however, by sentiment that the Federal Reserve will only cut US interest rates by a quarter point when it meets this week, to 4.25 percent, rather than by a half point to 4 percent as had been forecast earlier.

The greenback was trading at $2.0457 to the pound in afternoon trade in New York, while it sat at ¥111.7050 to the dollar.

Sterling was higher against most currencies after manufacturing output prices in the UK were reported up 4.5 percent in November by the Office of National Statistics.

It took €1.3902 to buy a pound in New York trade.

The Swiss franc saw declines as investors continued to make risky carry trades and on sentiment that the Swiss National Bank will hold interest rates steady when it meets this week.

In New York trade, the Swiss franc traded at SFr1.1280 to the US dollar, at Sfr1.6599 to the euro, and at SFr2.3077 to the pound.