Euro hovers near 17-month high in Asia

The euro hovered near a 17-month high against a struggling dollar on Thursday as investors looked for the European Central Bank to reinforce expectations of higher rates after its policy meeting later in the day. Markets are waiting to see if the ECB chief Jean-Claude Trichet will use the "strong vigilance" code words to signal a follow-up rate rise in June to the initial move in April as central bank steps up its fight against inflation.
Traders said that if Trichet repeats the phrase, the euro would push back above $1.49. But even if he leaves it out, the single currency was unlikely to fall much from current levels unless there is a bigger shake-out in risky assets. The dollar index hit its sixth three-year low in the last seven sessions, but managed to rebound from the trough. The index last traded at 72.972, down slightly from late US trade after having dipped as low as 72.696.
The euro edged up 0.2 percent to $1.4860 after having reached a high of $1.4940 the previous day on EBS. Talk of double-no-touch 1.4750/1.4950 in options market may contain the range, traders said. The Australian dollar took a brief hit after data showing retail sales fell in March and were flat in the first quarter, indicating that higher interest rates were keeping consumers cautious even as the resource sector booms.
But the data did little to shake views that the Australian central bank would resume lifting rates in coming months as core inflation shows signs of heating up. Earlier this week, the Reserve Bank of Australia said underlying inflation was likely to head higher, laying the gourndwork for further tightening. The Aussie was flat at $1.0735 on Thomson Reuters Matching, up from a session low of $1.0694.
The contrast with the ECB is clear. Against the Japanese currency, the dollar was down slightly at 80.50 yen, mired near its lowest levels since March 18 - the day of the co-ordinated G7 intervention to weaken the yen following its surge to a record peak against the greenback. The dollar has fallen some 6 percent from a high near 85.50 yen set early last month following a rare coordinated G7 intervention after the earthquake, tsunami and nuclear scare.