By: Barbara Zigah
The common currency steadied close to a 4-month peak versus the U.S. Dollar in Asian trading on growing speculation that the ECB is moving closer to an interest rate hike. As reported at 3:54 p.m. (JST) in Tokyo, the Euro was trading .1% higher against the greenback at $1.3874, just off the $1.8990 peak struck yesterday on the EBS trading platform. The Euro was also higher against the safe haven Swiss Franc, following talk that a peace proposal in Libya was being considered. The Euro gained .3% against the Swissie, trading at 1.2843 Swiss Francs.
The Euro could slip lower against both currencies if the ECB’s stance on inflation is seen as dovish, or if the Libyan government fails to accept the proposal. Most market players are hopeful that Jean-Claude Trichet, the ECB president, will ratchet up the rhetoric against inflation, even as the price of oil continues to surge. Some analysts caution that the ECB may be having second thoughts on a rate hike, with concerns of what such an effect may have on the Eurozone’s fiscally troubled PIIGS.
The continuing unrest in Libya is also likely to affect the Euro, and more so the U.S. Dollar, in the long term. One FX strategist believes that if WTI crude hits $110 per barrel, the Euro may rise above $1.40. Higher oil prices may encourage rate hikes among the central banks, which the Federal Reserve is determined not to do.