Wednesday May 7, 06:30 PM
Dollar rises against euro on eve of ECB rate call
LONDON (AFP) - The dollar climbed strongly against the euro and yen on Wednesday, supported by hopes that the worst of the credit crunch is over and that the US economy will hold up better than expected, dealers said.
They said the European Central Bank and the Bank of England are both expected to leave interest rates unchanged on Thursday, at 4.00 percent and 5.00 percent respectively.
While that will keep in place a large interest rate differential with the dollar, the US currency was supported on the view the US economy is holding up despite the credit crunch caused by the subprime home loan crisis there.
Better-than-expected US labour productivity figures helped boost that more positive view although some analysts cautioned that there could still be bad news as the US property market continues to contract.
In European trade, the euro fell to 1.5375 dollars from 1.5530 in New York late on Tuesday.
The dollar gained to 105.29 yen from 104.75 yen.
The US currency was "supported by market optimism that the credit crunch is starting to ease to some extent," said Kenichi Yumoto at Societe Generale (Paris: FR0000130809 - news) .
US mortgage finance giant Fannie Mae (NYSE: FNM - news) reported on Tuesday a net loss of 2.19 billion dollars (1.42 billion euros) and announced plans to raise fresh capital but executives also voiced hopes of an easing of the credit crunch.
The dollar's gains were capped by jitters about crude oil prices, which hit a new record high at 122.81 dollars per barrel on Wednesday.
Ahead of the ECB rate decision, official data showed consumers in the 15 nations sharing the euro had reined in spending during March, confounding hopes that they would keep their wallets open and so support a weakening economy.
The volume of retail trade in the eurozone fell O.4 percent in March from February and slumped 1.6 percent over 12 months, the European Union's Eurostat data agency said.
"Although consumer confidence has softened lately it remains much stronger than in the US or the UK," said Capital Economics analyst Jennifer McKeown.
Meanwhile the ECB said on Wednesday that Slovakia fulfilled all the criteria to adopt the euro on January 1, 2009, but expressed "considerable concerns" about inflation in the country.
In London on Wednesday, the euro changed hands at 1.5375 dollars against 1.5530 late on Tuesday, at 161.87 yen (162.68), 0.7875 pounds (0.7869) and 1.6268 Swiss francs (1.6335).
The dollar stood at 105.29 yen (104.75) and 1.0582 Swiss francs (1.0515).
The pound was at 1.9517 dollars (1.9735).
On the London Bullion Market, the price of gold fell to 868.25 dollars per ounce from 880 dollars late on Tuesday.
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