Euro nears high of year against dollar

From Agence France-Presse
Monday, August 21, 2006

http://news.yahoo.com/s/afp/20060821/bs_afp/forexus

The euro neared its highest point of the year against the dollar on expectations of rising interest rates in Europe's common currency zone, dealers said.

While the European Central Bank is forecast to keep raising rates, data in the United States and Japan indicate that borrowing costs there are likely to stay steady, analysts believe.

The euro went as high as 1.2938 dollars at one point Monday, challenging its 2006 peak of 1.2979. By 2100 GMT it had subsided to 1.2892 dollars, up from 1.2825 late in New York on Friday.

Against the yen, the euro reached its highest-ever level of 149.74 before trading at 149.37 at 2100 GMT, up from 148.53 late Friday.

The dollar strengthened marginally to 115.86 yen, from 115.77 yen on Friday.

In general, the greenback has weakened since August 8, when the Federal Reserve kept US interest rates steady for the first time since mid-2004.

AG Edwards currency analyst Nicole Miller said that soft economic data have bolstered the bank's forecast of slowing inflation and suggest "the Fed may again refrain from raising interest rates at its next meeting on September 20".

In contrast, the ECB is widely expected to raise eurozone interest rates again in October as the 12-nation economy finally perks up after years of drift.

"The dollar has been undermined against the euro by the prospect that interest-rate differentials between the United States and the eurozone will continue to narrow," said Paul Chertkow, head of global currency research at the Bank of Tokyo-Mitsubishi.

"There is no longer speculation on a final 0.25 point increase in the federal funds rate to 5.50 percent this year," Chertkow said.

But Miller added: "The dollar may rebound tomorrow, though, due to rising concern over how Iran will respond Tuesday to the United Nations threat of sanctions.

"Lately, investors have been seeking safe haven in the dollar during conflict in the Middle East."

Iran has vowed to press on with uranium enrichment work despite a UN Security Council resolution calling for a freeze by August 31.

4CAST currency analyst Paul Bednarczyk said meanwhile that the yen's weakness was down to market talk that Japanese consumer price inflation numbers on Friday would come in below expectations.

That, he said, was coupled with a growing belief that the Bank of Japan will hold off raising interest rates again in the short term, after it tightened borrowing costs in July for the first time in nearly six years.

In other trading, the Chinese yuan was worth 7.9656 against the dollar, compared with a central parity rate of 7.9698 set by China's central bank at the start of trading on Monday.

On Friday, the Bank of China announced its second rate hike in less than four months in another effort to slow the nation's booming economy.

A stronger yuan would help reduce Chinese exports and slow down the nation's powerhouse economy, analysts contend.

The pound bought 1.8938 dollars at 2100 GMT, up from 1.8818 late Friday.

The dollar changed hands at 1.2242 Swiss francs, from 1.2331.