Euro rises to record $1.60 on ECB inflation outlook

Posted Apr 22nd 2008 3:55PM by Joseph Lazzaro
Filed under: International Markets, Forecasts, Other Issues, Abbott Laboratories (ABT), Abercrombie and Fitch (ANF), Federal Reserve

The euro climbed to a record-high $1.6020 versus the dollar Tuesday, after the European Central Bank signaled that they'll increase interest rates -- despite slowing growth -- if inflation accelerates, Bloomberg News reported.

The euro rose about 1.5 cents to $1.6020 versus the dollar before paring some gains to trade around $1.5985 in Tuesday afternoon trading. The Euro also rose about four-tenths of a pence against the British pound to 80.20 pence.

Dollar falls, again

Meanwhile, the dollar retreated across the board, falling about 1.5 cents to $1.9950 versus the British pound and about one-half yen to 102.95 versus Japan's yen. Independent currency trader Andrew Resnick told BloggingStocks Tuesday that traders responded to the ECB's announcement by doing what you'd expect: they bought the euro.

"The only thing holding back the euro was the possibility the ECB would cut rates. The fundamentals have been in the euro's favor for several years. The market had priced-in a possible rate cut by the ECB, but when ECB comments came in today the market quickly bid up the euro," Resnick said. He added that he is presently long with the euro against the dollar.

G-7 impact: None

Resnick said last week's G-7 meeting, in which global finance leaders voiced concern over the falling dollar "seems like a distant memory, in market terms, now." Initially, traders had feared a central bank(s) intervention to support the dollar, he said. It was not a concern rooted in empirical evidence.

"Basically, the market feels economic leaders will tolerate the dollar's decline, so long as it's not sudden, or volatile. And with oil getting near $120, the dollar will continue to decline," Resnick said. "It's back to fundamentals ruling the day in the currency market." Oil closed Tuesday up $1.89 to $119.37 per barrel, a record-high close.

Resnick said there's a good chance the dollar will weaken to $1.65 versus the euro by the end of Q2 2008. If it does, the euro will have doubled in value versus the dollar since 2001.

When will the greenback begin its comeback? "When the United States cuts its budget deficit, lowers its trade deficit, and its economy starts to grow again, making our [U.S.] investments more attractive to foreign investors," Resnick said.

Tags: British pound, currency markets, dollar, euro, forex, interest rates, inthenews, yen