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Written by: Staff

TOKYO, Apr 26 (Reuters) The dollar was mired near a seven-month low against the euro on Wednesday after a senior European Central Bank official suggested the pace of interest rate increases could accelerate.

ECB executive board member Jose Manuel Gonzalez-Paramo said European central bankers would reassess their credit tightening plans at next Thursday's meeting, and repeated that they are not pre-committed to any specific timing on credit tightening.

The comments followed data showing German business sentiment rose unexpectedly to a 15-year high in April and that steep oil prices fuelled a pick-up in the pace of inflation in the euro zone's largest economy.

Most analysts expect the ECB to wait until June before raising rates to 2.75 percent from 2.5 percent after ECB President Jean-Claude Trichet doused widespread expectations for a move as soon as May earlier this month.

The dollar slid against the euro despite upbeat U.S. data showing consumer confidence rising to a four-year high in April and existing home sales posting a surprising advance in March, tipping expectations toward the Federal Reserve raising rates twice more.

After the Group of Seven powers called last week on China to let its currency strengthen more and threw the spotlight on global trade imbalances, the dollar has come under even more pressure after sliding on expectations for a near-term Fed pause.

That surprise change of language unleashed a rally in the yen, which is often traded as a proxy for the yuan and Asian currencies.

''It's not the trend to buy the dollar/yen back yet,'' said one chief trader at a European investment bank.

Among data later in the session that will help shape the rate outlook are first-quarter growth figures for Britain, euro zone industrial production in February, along with March durable goods and new home sales in the United States.

In early Tokyo trade, the dollar was little changed at 114.85 yen after briefly rising above 115 yen. The U.S. currency hit a three-month low of 114.24 yen in the wake of the G7 meeting.

Traders said they expected the dollar to find support from Japanese importers and investors around 114.30 on any dips.

The euro was also little changed at $1.2425 near a seven-month peak of $1.2440 struck on Tuesday. Against the yen, the euro was flat near 142.70 yen recovering from a one-month low of 141.50 yen struck the previous session.

Sterling also changed hands near a seven-month high at $1.7883 The ECB is now widely expected to lift rates to 3.25 percent by the end of the year, narrowing the dollar's yield advantage that had helped fuel a dollar rally last year.

The Fed is widely expected to raise overnight rates to 5 percent at its meeting in May but investors are divided on whether the U.S. central bank will press on with another increase to 5.25 percent in June.

After the minutes of the Fed's March meeting said some policymakers felt the central bank was near the end of its nearly two-year long credit tightening cycle.

Also due later on Wednesday at 1800 GMT the Fed will release is beige book report, an anecdotal summary of economic conditions in the country that central bankers will have in hand for their May 10 policy meeting.


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