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The euro strengthened against the dollar and the yen after euro-region inflation unexpectedly accelerated in March, bolstering the case for the European Central Bank to raise interest rates next week.
Inflation in the 17-nation euro region quickened to 2.6% in March from 2.4% in February, European Union estimates showed today. That’s the fastest pace since October 2008, and exceeds the ECB’s 2% limit for a fourth month. Economists had forecast inflation to hold steady.
“As risk is being put back on, the euro is benefitting as the market looks forward to interest-rate expectation, regardless of what their economy is doing, the Irish stress test or any banking issues,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust in Buffalo New York. “Not only is the euro resilient against the dollar, it’s kicking everyone’s tail.”
The 17-nation currency remained higher against most its major counterparts after Ireland announced that four of the country’s banks need to raise 24 billion euros ($34 billion) of additional capital. The dollar weakened as fewer Americans filed jobless benefits applications last week before the March employment report tomorrow.
The shared currency earlier pared gains against the greenback after Anglo Irish Bank Corp. Chief Executive Officer Mike Aynsley said he’s “not sure we’ll get details” of plans for a funding facility for Irish banks after results of the stress tests.
“Consumer price data is outweighing Portugal and Ireland,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “It adds supports to the euro.”
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