Euro Creeps Upward Against the U.S. Dollar

The euro continued its slow creep upward against the U.S. dollar Monday as traders awaited a raft of economic reports from Washington later this week, including with testimony by U.S. Federal Reserve Bank chairman Ben Bernanke.

In morning European trading, the euro bought US$1.2938, up from US$1.2915 on Friday, still boosted by sentiment the European Central Bank will lift its key interest rate to 3.75 percent in March. Last week, the bank left it unchanged at 3.5%.

Higher rates, a weapon against inflation, support a currency by making some assets denominated in that currency more attractive to investors.

Several key U.S. economic reports are due out this week, including December consumer prices, along with economic surveys from the Federal Reserve Bank. Bernanke is scheduled to testify about the state of the U.S. economy before the U.S. Senate banking committee Thursday.

U.S. markets were closed Monday in observance of the annual Martin Luther King holiday.

The British pound rose to US$1.9647 from US$1.9581 on Friday, driven by the possibility that last week's surprise decision by the Bank of England to raise its key interest to 5.25%, could herald more increases.

"There is scope for further upside for sterling against the majors given that the Bank of England have matched their hawkish rate decision with hawkish commentaries," said Peter Frank, a currency strategist with ABN AMRO in London.

HBOS currency strategist Steve Pearson said there was a 40% chance that the bank could lift its rate to as much as 5.75% by the middle of 2007.