Friday 26 December 2014

Euro's climb against dollar continues as new rate cut 'off agenda'

Charlie Weston Personal Finance Editor

Published 15/01/2013 | 05:00

THE euro surged to an 11-month high against the dollar yesterday, as the markets concluded that a cut in eurozone interest rates this year was unlikely.

It was the third day in a row that the currency rose against the dollar, leaving it at $1.34.

The single currency shared by 17 countries also extended gains versus the yen, hitting its highest level since May 2011, as Japan put more pressure on its central bank to ease monetary policy.

It was trading at 83p against sterling, a nine-and-a-half month high.

The euro has appreciated 1.2pc against the US currency so far in 2013. Much of the gain has been put down to the upbeat tone of comments made by ECB president Mario Draghi after its policy-setting meeting last Thursday.

Competitive

Mr Draghi suggested an interest rate cut was off the agenda for now and pointed to signs of improvement in the eurozone economy and in financial markets, which set a supportive tone for the euro.

This is bad news for homeowners with tracker mortgages who would gain from a lower ECB interest rate, while a stronger euro makes exports less competitive.

Declining borrowing costs for highly indebted Spain and Italy have allayed fears about the debt crisis, but the region's economic backdrop remains unimpressive. Output at eurozone factories fell for a third straight month in November, other figures showed.

Value

Justin Doyle, of Investec Bank in Dublin, said the ECB president may not have intended to push up the value of the currency.

"I'm sure if Mr Draghi had been aware that his slightly more upbeat statement on Thursday would push the euro up almost 4pc against the dollar in two trading sessions, he may just have tempered his rhetoric slightly."

Mr Doyle said most international central bankers were trying to keep the value of their currencies as low as possible in order to increase export competitiveness.

"But our Mr Draghi does his level best to talk the euro up. Go figure," he added.

Irish Independent

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