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The euro rallied to its highest level against the dollar in more than 14 months on speculation the European Central Bank will increase borrowing costs further after raising its target lending rate tomorrow.
“The assumption in the market is that the ECB will not only raise rates tomorrow, but is likely to engage in further tightening, and that’s really what’s boosting the euro,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “Japan will remain ultra accommodative for as far as the eye can see, and the rest of the world is slowly but surely moving back toward tightening.”
ECB President Jean-Claude Trichet signaled on March 3 that policy makers may raise the benchmark rate at their next meeting to curb inflation, which reached a two-year high of 2.6 percent last month.
The ECB will raise its main rate by 25 basis points from a record low 1 percent tomorrow, according to economists.
Europe’s currency has gained 6.9 percent against the dollar this year as stronger economic growth in Germany and accelerating inflation boosted expectations that policy makers in the 17-member bloc will need to raise interest rates even as nations including Ireland and Portugal struggle to contain debt.
The yen tumbled against all of its major counterparts on bets the Bank of Japan will keep interest rates low as the nation recovers from the earthquake and tsunami while borrowing costs in other developed nations rise. The dollar slid against most of its peers while advancing to a six-month high versus the yen on the view that the Federal Reserve will trail other central banks in ending economic stimulus except the BOJ.
The Swiss franc gained versus most of its major counterparts, rising 0.8 percent to 91.77 centimes versus the dollar, as inflation unexpectedly accelerated in March.
Consumer prices increased 1 percent from a year earlier, the Federal Statistics Office reported. The median forecast of economists was for a 0.5 percent annual pace, the same as in the previous month.
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