GO
Loading...

Dollar Gains vs Euro on European Rate Expectations

Associated Press
Monday, 7 Jan 2008 | 11:58 AM ET

The dollar edged upward against the euro and the pound Monday as markets pondered whether rising inflation in the euro zone and Britain may bring interest-rate changes later this week.

Exchanging Dollars and Euros
Exchanging Dollars and Euros

"It's going to be the Bank of England and European Central Bank rate verdicts that dominate the agenda for currency traders in the coming days," CMC Markets analyst James Hughes said of the decisions, both due Thursday.

The 15-nation euro bought $1.4675 in mid-afternoon trading, below the $1.4773 it bought in late New York trading Friday, when U.S. Labor Department data indicated that hiring was being sapped by the ongoing housing slump and credit crisis.

Rising inflation across the 15-nation zone that uses the euro, which rose 11 percent against the dollar in 2007, could put the European Central Bank in a quandary.

The bank has made fighting inflation -- now estimated to be at 3.1 percent, well above its guideline of just under 2 percent -- its central strategy, and that speaks against reducing interest rates.

However, higher rates -- used to combat inflation -- also can strengthen a currency, and the near-record strength of the euro has raised concern among businesses and politicians about the competitiveness of European exports.

The British pound fell to $1.9684 from $1.9723 on a sharp slowdown in the housing market, which may force the Bank of England to cut its benchmark interest rate from 5.5 percent this week -- even though inflationary pressure is rising.

In other trading, the dollar slipped to 109.13 Japanese yen from 109.26 yen.

Contact FX

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More