Thursday, 24 Mar 2011

EUR Dips as ECB Discusses Future Rate Cuts

The EUR fell recently, dipping towards $1.4050, before retracing back above $1.4125. The potential for a hike in interest rates, combined with a sense that there is a desire among European policymakers to resolve the region's debt crisis, is expected to keep the euro supported well above $1.40 over the next several months.

Reuters recently reported that another signal of an impending interest rate hike next month was a comment by European Central Bank (ECB) executive board member Lorenzo Bini Smaghi who warned keeping rates very low amounted to an expansionary policy that risked spurring excessive risk-taking.

Other such hints for traders could include continued tensions in Libya and the Middle East. Against a backdrop of uncertainty and broad aversion to taking on risk the Swiss franc was stronger, as was the yen.

Market participants were wary, however, of Japanese authorities returning to sell the yen aggressively, particularly below 80.50 yen per dollar, where they came in last Friday.