On Monday the euro hesitated against the dollar in an undecided market, after momentarily climbing to its highest level in five months, as investors anticipate an increase in rates by the European Central Bank (ECB) this week. The euro currency was worth 1.4219 dollars. It climbed in Asian trade to 1.4268, its highest level since November 4, before declining and then rising again. The euro steadied against the Japanese currency to 119.41 yen.
The ECB has hinted that it would use its next meeting on Thursday to raise its key rate to fight against the acceleration of inflation in the euro area. President Jean-Claude Trichet has indicated several times since early March a possible increase in April of the key rate which has been maintained at the very low level of 1% since May 2009, allowing the euro to advance significantly in recent weeks. It seems that market participants are already anticipating a 25 basis point rate by the ECB (an increase in rates makes a currency more attractive as more profitable).
The ECB press conference on Thursday is expected to generate considerable interest from investors, who scrutinize any sign that may indicate that the expected rate increase will mark the beginning of a cycle of tighter monetary policy in the euro area, with a second rate hike by summer. This perspective could instead reinforce concerns over the most indebted countries in the euro area, like Greece, Ireland and Portugal, while the latter is already groaning under very onerous debt markets and suffer from negative growth.
For its part the U.S. currency remained under pressure, despite the encouraging figures of the monthly report on employment in the United States on Friday. The president of the New York branch of the U.S. Federal Reserve said on Friday that the economic recovery in the U.S. remained fragile, with too high an unemployment rate, removing the likely prospect of a rate hike by the Fed. Investors will also monitor the decisions of monetary policy by the Bank of Australia and Bank of England, Tuesday and Thursday respectively, traders expecting a status quo from both institutions. The Australian dollar rose to 1.0417 U.S. dollar on Monday, its highest level since it has been decided to float the currency in 1983.
The British pound rose against the European single currency at 88.15 pence per euro, and against the greenback at 1.6131 dollar. The Swiss currency gained ground against the euro at 1.3116 Swiss francs to one euro, as against the greenback at 0.9225 Swiss francs to the dollar. One ounce of gold finished at 1435.50 dollars at tonight’s auction, also near its highest level. The Chinese currency has in turn yuan finished at 6.5450 per dollar.