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The euro advanced against the dollar and the yen after a report showed German manufacturing growth unexpectedly accelerated, adding to speculation that the European Central Bank will raise interest rates further.
The unified European currency also rose against the Swiss franc and Australian dollar as Greece sold 13-week Treasury bills even after the nation’s two-year note yields rose to 20 percent amid concern that the country will eventually restructure its debt.
“The survey today confirmed a picture which has been in place that the core countries, such as Germany, are performing strongly and that will push interest rates higher,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “Although it’s debatable how far the ECB can go given the debt crisis, in the near-term the euro will be supported by interest-rate differentials.”
European Central Bank Governing Council Member Nout Wellink said the central bank’s April 7 interest rate increase sent to investors an “extremely important” signal aimed at preventing expectations of higher inflation.
While Wellink didn’t explicitly ratify market and economic forecasts that the ECB’s policy rate will rise a further 50 basis points this year to 1.75 percent, he made it clear the central bank will keep inflation control its main policy goal.
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