Euro hits fresh high against dollar

Neil Dennis
Financial Times
Friday, February 29, 2008

The dollar hit another record low against the euro on Friday, as data continued to support the view that the European Central Bank will keep interest rates on hold for the foreseeable future.

Headline inflation in the eurozone stood at 3.2 per cent in January, tallying with earlier estimates and market expectations as food and energy prices leapt. Meanwhile, unemployment in the eurozone held at a record low of 7.1 per cent in January.

”With headline inflation running at a 14-year high and the lingering threat of second round effects, it is premature for the ECB to switch to an easing bias in their policy stance just yet,” said Martin van Vliet at ING.

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While the ECB remained unlikely to cut eurozone interest rates at its next policy meeting on Thursday, markets were fully pricing in a cut of 50 basis points at the US Federal Reserve’s meeting on March 18.

”Markets are probably wisely bracing themselves for further monetary policy divergence between the US and eurozone over the next few months,” added Mr van Vliet.

The euro rose to a record high of $1.5238, before retreating to $1.5206, little changed on the session.

The dollar fell 0.4 per cent against the Swiss franc to SFr1.0451, a new low, and was down a hefty 1 per cent against the yen to Y104.22. The dollar index, the US unit’s value against a basket of currencies, fell to a fresh low of 73.560.

Sterling was also weak. It fell 0.5 per cent against the dollar to $1.9815 after the Nationwide Building Society said its British house price index fell for the fourth month in a row.

Meanwhile, the Bank of England reported that new mortgage approvals were flat in January, but still 36 per cent below their peak in June 2007.

Full article here.

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