By Emma Charlton – Mar 22, 2011 5:21 AM PT
The euro reached a five-month high against the dollar amid speculation the European Central Bank will raise interest rates next month to tame inflation.
Britain’s pound surged as data showed consumer-price growth surpassed economists’ forecasts. European Central Bank Executive Board member Gertrude Tumpel-Gugerell and Governing Council member Yves Mersch both said yesterday that “strong vigilance” is necessary to keep a lid on inflation. The Dollar Index, which tracks the U.S. currency against six major peers, fell to a 15- month low. New Zealand’s dollar rose for a third day.
“It’s a risk-on and monetary tightening story,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “Euro-dollar is a beneficiary of that, and looks like it’s going to continue to trade higher.”
The euro rose 0.1 percent to $1.4239 at 8:20 a.m. in New York and reached $1.4249, the highest since Nov. 5. The currency has climbed for four straight days, the longest streak since the five days ending Jan. 27. The Dollar Index fell 0.1 percent to 75.292, the lowest since December, 2009.
The euro may extend its advance and reach $1.4280, Stretch said.
The yen depreciated 0.1 percent to 115.38 per euro, approaching a two-week low, as Japan made progress restoring a crippled nuclear plant’s cooling systems. Against the dollar, it was little changed at 80.98.
Japan has been battling for 12 days to prevent a meltdown after the plant north of Tokyo was damaged in the March 11 earthquake and tsunami, leading to explosions at the steel-and- concrete structures around the reactors and overheating fuel rods. The yen soared to a postwar high on March 18 on speculation local insurers were repatriating overseas assets to pay for reconstruction, prompting Group of Seven nations to sell the currency to weaken it and bolster Japanese exports.
European Central Bank officials have indicated the economic uncertainty caused by Japan’s earthquake may not deter them from a rate increase at their next meeting on April 7. ECB Governing Council member Guy Quaden is due to speak in Brussels today.
ECB President Jean-Claude Trichet told the European Parliament yesterday he has “nothing to add” to his March 3 remarks, when he said policy makers may raise the benchmark rate from a record low of 1 percent at their next meeting.
The pound rose as much as 0.6 percent to $1.641, the highest since January 2010, as inflation data bolstered the case for the Bank of England to increase rates. Against the euro, sterling appreciated 0.4 percent to 86.88 pence.
Consumer prices rose 4.4 percent in February from a year earlier, according to the Office for National Statistics, higher than the 4.2 percent median forecast of economists in a Bloomberg News survey.
“The market is just viewing that as ammunition for a rate rise,” said Gavin Friend, a markets strategist at National Australia Bank Ltd. in London.
New Zealand’s dollar appreciated 1.1 percent to 74.41 U.S. cents. The International Monetary Fund said the nation’s central bank may need to raise rates “relatively quickly” once the economy begins to recover. Australia’s dollar rose 0.6 percent to $1.0124.