The euro rallied to a more than two-year high against the dollar Thursday, after the head of the European Central Bank signaled that interest rates in the euro zone will rise in the coming months.
The dollar fell across-the-board on concerns over uncertainties in U.S. economic growth and as traders positioned themselves ahead of the upcoming meeting of Group of Seven finance ministers in Washington over the weekend.
"The combination of robust [eurozone] growth and rising interest rates is fuelling the single currency," said Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York. Meanwhile, "the dollar's shaky foundation goes from bad to worse" as the currency "remains overshadowed by the risk of further slowing at home and robust abroad."
In New York trading, the dollar was quoted at 119.01 yen, compared with 119.31 yen late Wednesday. The euro stood at $1.3476, compared with $1.3429. In intraday trading, it had risen to $1.3503, the highest level since January 2005.
The British pound traded at $1.9775 vs. $1.9754. The dollar changed hands at 1.2169 Swiss francs, compared with 1.2205 francs.
The euro fetched 160.42 yen, compared with 160.28 yen, after rising to a new record high of 160.85 yen.
The Dollar Index, which tracks the dollar against a basket of the world's major currencies, fell to its lowest level since March 2005.
The Frankfurt-based ECB on Thursday held rates at 3.75%, as expected, after a quarter-percentage-point hike in March. The ECB sets interest rate policy for the 13 countries that use the euro as their currency, from Germany to Slovenia. The central bank has gradually lifted rates from a low of 2% in December 2005 as the European economy has improved.
'Very closely'
At a post-meeting press conference, Jean-Claude Trichet said the bank will continue to monitor inflation risks "very closely," and that wage increases remain a significant risk to price stability.
The euro briefly came under a bit pressure as Trichet held back from using the phrase "strong vigilance," which would have likely indicated a further hike in May. Instead Trichet said monetary policy continues to be "on the accommodative side."
Trichet's comments are "mostly less-hawkish, but this is not very much out of line with expectations" said Brian Dolan, director of research at Forex.com, a division of Gain Capital. His language "tends to indicate no rate hikes are planned in the immediate future, probably two months out at the minimum," he said.
Kathy Lien, chief strategist at DailyFX.com, said while Trichet's comments raised doubt for a hike next month, the European Central Bank "is still on track to raise rates one more time this year."
CMC Market's Laidi viewed Trichet's decision to leave out "vigilance" as " tactical" due to the strength in the euro.
"Using the term 'vigilance' would have been received as a guarantee of a May rate hike, thus risking further elevating the euro from its current two-year highs," he said. "Today's change of rhetorical tack does not preclude a [second- quarter] rate hike, it only means the ECB is being cautious with the rising value of its currency."
U.S. data
Initial jobless claims rose by 19,000 in the week ending April 7 to 342,000, the highest in eight weeks, the Labor Department reported Thursday.
The more-reliable four-week average of new claims - which smoothes out distortions from events such as weather or holidays -- rose by 7,000 to 323,250, the highest in three weeks.
In a separate report, the Labor Department said prices of imported goods rose by 1.7% in March, the biggest gain in 10 months and much higher than the 0.6% gain expected by economists.
The market remained cautious ahead of the upcoming meetings of Group of Seven industrial nations and the IMF in Washington D.C. this weekend.
"Evidence that Japanese investors have begun redeploying funds overseas, coupled with what seems to be a more relaxed official attitude about the yen's weakness ahead of the G7/IMF meetings continues to weigh on the yen," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
"The comments before the meetings at the end of the week, concerns about yen weakness and yen-carry trades, which had been a cause of so much anxiety in Feb, when the yen was actually a bit stronger than it is today, is noticeably absent, " he said, in a note.
The yen received a boost after Trichet said that the Japanese economy is recovering and that the yen should reflect fundamentals.
Elsewhere, China reported its foreign-exchange reserves rose $136 billion in the first-quarter to $1.2 trillion, driven by a significant trade surplus and capital inflows. China has the largest currency reserves in the world
Source : Forex.com
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