Euro turns higher against dollar

AFP, Monday 13 Dec 2010

The European single currency turned higher against the dollar on Monday as the markets welcomed apparent policy restraint by China despite a sharp spike in its inflation rate, dealers said.

They said the fact that China held fire on hiking interest rates despite news that inflation jumped to 5.1 percent in November from 4.4 percent in October suggested Beijing may be very cautious in reining in the economy.

That view generally gave stock markets a boost, especially in Asia where China is the major growth driver, as investors were encouraged to take on a bit more risk -- which also redounds to the euro's benefit.

Dealers said the investors were also waiting for a meeting of the US Federal Reserve this week while also keeping an eye on eurozone debt issues in the run up to a European Union summit.

In late Monday trade, the euro was higher at 1.3382 dollars, up from 1.3226 dollars in New York late on Friday.

The dollar was also weaker against the Japanese unit, falling to 83.56 yen from 83.94 yen on Friday.

"There is a data void today which could focus investors' minds on the upcoming (Fed) meeting that starts (Tuesday) and the ongoing European sovereign debt issues," said analyst Kathleen Brooks at trading site Forex.com.

The Fed is expected to maintain interest rates at their current historic low between zero and 0.25 percent but could give some detail on last month's decision to renew massive asset purchases in an effort to support recovery.

"The Fed is not expected to do anything dramatic at its last meeting of the year," Brooks said.

"The European Union summit on Thursday and Friday is likely to be the most important event for the euro this week," said Commerzbank analyst Ulrich Leuchtmann.

"At the meeting, the permanent crisis mechanism will be drawn up, which will replace the temporary regulations agreed on in May.

"Even though the finance ministers laid down the basic principles during a meeting at the end of November, once again the devil is in the details."

Leuchtmann said the financial markets would welcome clarity on the issue.

"By coming to a decision so quickly a lot of uncertainty would be removed from the markets but until then this uncertainty is going to maintain pressure on euro/dollar," he added.

In London on Monday, the euro changed hands at 1.3382 dollars against 1.3226 dollars late in New York on Friday, at 111.81 yen (111.03), 0.8437 pounds (0.8367) and 1.2949 Swiss francs (1.2966).

The dollar stood at 83.56 yen (83.94) and 0.9677 Swiss francs (0.9805).

The pound was at 1.5860 dollars (1.5803).

On the London Bullion Market, the price of gold rose to 1,399 dollars an ounce from 1,375.25 dollars late on Friday.

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