The U.S. Dollar fell against the Euro in mid-afternoon trading in Asia because investors are speculating that the European Central Bank will increase its key interest rate next month, the first increase in a year. The market is anticipating that the ECB will hike its interest rate by 25 basis points or more, following comments made by ECB president, Jean-Claude Trichet, since July, to curb rising inflationary pressures in the Euro zone.
May inflation data for the 15 member Euro zone will be released later today, and most analysts are predicting that consumer prices will rise by 3.6% exceeding ECB’s target of 2% for the year. High oil and commodity prices are putting more pressure on inflation in many countries, including those in the Euro zone, United States, United Kingdom, Canada and Asia.
Since June 2007, the ECB has maintained its key interest rate at 4%, which is the highest since 2001, while the key interest rate in the U.S. is 2%. As a result of the interest rate differential, investors are moving out of the U.S. dollar in to the Euro, which surged against the dollar in recent months.
On June 16, 2008, at 01:00 pm (05:00 GMT) in Sydney, the Euro traded at $1.5397 compared to $1.5379, while the U.S. Dollar traded at 108.21 Yen, as compared to 108.30 Yen.