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LONDON)
By Vivianne Rodrigues
NEW YORK, April 22 (Reuters) - The euro traded near record
highs on Tuesday as surging oil prices and hawkish comments
from European Central Bank officials supported the view
benchmark rates in the region are not likely to come down soon.
Rising inflation stemming from soaring food and energy
prices came firmly into view as U.S. crude oil hit a historic
high, topping the $118 per barrel mark <CLc1>. This gave added
impetus to inflation-busting talk from ECB policymakers,
determined to contain the impact of rising prices.
ECB Governing Council member Christian Noyer said the bank
would do what is needed to bring inflation back to its target
of just below 2 percent, adding it would move rates if needed.
That followed comments from Governing Council member Yves
Mersch, who said the ECB has to ask itself each month whether a
rate rise is needed to control inflation. For more see
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"Interest rate differentials are really favoring the euro
right now," said Camilla Sutton, a currency strategist at
Scotia Capital in Toronto. "The ECB and its members seem to be
really focused on fighting inflation, and that has been giving
the European currency a boost after the recent drop."
The euro rose after falling on news Germany's BdB banking
association had taken control of Duesseldorfer Hypothekenbank
<DUOGg.F> and planned to sell it after the property lender ran
into problems linked to the current financial crisis.
In morning trading in New York, the euro zone single
currency was last 0.1 percent higher at $1.5919 <EUR=>, nearing
last week's record high at $1.5983 according to Reuters data.
The dollar was nearly flat at 103.26 yen <JPY=> and 0.15
percent lower versus a basket of six other major currencies at
71.569 <.DXY>.
DIVERGING VIEWS
"We have been hammered by hawkish comments from ECB members
overnight and during the past week, aggressive comments
suggesting that not only is the ECB planning to leave rates on
hold, but they are also actively considering raising rates to
stamp on inflation," said Teis Knuthsen, head of FX research at
Danske Markets in Copenhagen.
Any dips in the euro from last week's historic high have
been contained by a view that interest rate differentials are
set to move further in its favor, as the ECB is seen keeping
rates at least at a six-year high of 4.0 percent for a while.
In contrast, markets expect the Federal Reserve to lower
benchmark U.S. rates further from the current 2.25 percent at a
policy meeting on April 29-30.
Fresh impetus for such expectations -- which could drag the
dollar lower -- could come from U.S. housing data at 10 a.m.
(1400 GMT) with the annual rate of existing home sales seen
easing to 4.92 million units.
"Prices may have at least another 10 percent to fall. (This
is) not an environment where home sales volumes look likely to
pick up," said Calyon in a client note. "In a quiet day, this
might be sufficient to force EUR/USD above $1.60 though if the
earlier efforts to get above $1.50 are illustrative, we may be
in for a longer wait."
The Canadian dollar fell after the Bank of Canada cut its
benchmark interest rate by a half percentage point as expected.
The U.S. dollar last traded up 0.2 percent at C$1.0079 <CAD=>.
(Additional reporting by Veronica Brown in London; Editing by
James Dalgleish)
