Forex Trading - Euro Advances

Euro Advances as ECB Officials Suggest Interest Rates Still Headed Higher
March 8 (Bloomberg) -- The euro rose against the dollar and yen as European Central Bank officials suggested the region's interest rates may be headed higher, after two rate boosts by the central bank in three months.

Europe's currency gained against 11 other major currencies as council member Axel Weber warned of inflation risks in the region. Council member Klaus Liebscher said rates are still ``very low.'' The euro has gained 0.6 percent versus the dollar this year on expectations the ECB will raise its benchmark to a four-year high of 3 percent from 2.5 percent now.

``It's consistent with the message that rates are going to go higher and that's definitely a positive for the euro,'' said Marios Maratheftis, a currency strategist at Standard Chartered Plc in London. ``Although the ECB might not close the rate gap with the U.S. there will be some competition rather than further widening.''

The euro climbed to $1.1924 at 10:33 a.m. in New York, from $1.1888 late yesterday, and earlier reached $1.1941. It also rose to 140.52 yen, from 140.02 yen. The yen was little changed at 117.90 per dollar, from 117.86 yesterday.

There is ``a considerable excess of liquidity and the trend is expansionary,'' Weber was quoted as saying at a dinner yesterday in Dusseldorf, according to Reuters. The ECB last week raised borrowing costs by a quarter-percentage point to 2.5 percent to curb inflation. ``The economic outlook has clearly brightened for both the euro area and for Austria,'' Liebscher said in a speech prepared for delivery in Vienna today.

Yen Bets

The yen snapped fell the past three days against the dollar as traders reduced bets the Bank of Japan would start raising rates from zero percent as early as this year. Interest rates in Japan are the lowest in the world, leading the nation's investors to funnel money abroad.

``The market has the sense that the BOJ is in the mood to alter policy, but there could be longer to wait,'' said Tim Fox, a currency strategist at Dresdner Kleinwort Wasserstein in London. ``The yen has taken that into account.''

Japan's central bank may reduce the cash it makes available to lenders, a precursor to raising interest rates, according to eight of 13 economists surveyed by Bloomberg on March 3 and 4. The bank announces its decision tomorrow after a two-day meeting.

Three-month euroyen futures indicate traders this week have cut bets the central bank will raise rates by 25 basis points, or 0.25 percentage point, in the last quarter of 2006.