LONDON: The euro soared Wednesday to a 16-month dollar high, lifted by weaker-than-expected US economic data, Portugal's bailout and jitters on the eve of a eurozone interest rate decision.
At about 1400 GMT, the European single currency bounced as high a $1.4940, reaching a level last seen in early December 2009. It later stood at $1.4921, up from $1.4823 late in New York on Tuesday.
‘The weaker than expected ADP employment report has led to some increase in worries of a weak payrolls on Friday, contributing to negative dollar sentiment,’ said economist Nick Stamenkovic at RIA Capital Markets in London.
He added: ‘The euro looks set to hit $1.50 soon.’
Payrolls firm ADP said Wednesday that private companies added 179,000 jobs last month, slowing from 207,000 net new jobs in March. Analysts had projected that nonfarm payrolls would grow by 200,000 in April.
On Thursday, the European Central Bank (ECB) is expected to keep its key interest rate at 1.25 percent, analysts agree.
However, the ECB governing council, gathering in Helsinki for one of two annual meetings away from the bank's headquarters in Frankfurt, could hint at more rate hikes, with the first possibly as soon as June.
‘The euro has rallied against the dollar as investors nervously await the outcome of the ECB press conference tomorrow,’ added Stamenkovic.
‘The risk is that ECB president Trichet mentions 'strong vigilance', the code words for a rate hike as soon as June.
‘In contrast, the Federal Reserve looks set to maintain an accommodating monetary stance for some time, highlighting diverging euroland/US rate expectations.’
The ECB raised its main lending rate in April for the first time since July 2008 to counter inflation pressures that have risen as the 17-nation eurozone economy grows and oil prices climb worldwide.
On Tuesday meanwhile, debt-ravaged Portugal became the third eurozone country to agree a bailout with the European Union and the International Monetary Fund.
‘News that Portugal has come to an agreement about its bailout package with the EU and IMF has .. helped underpin the single currency, with a package of 78 billion euros over three years,’ said CMC Markets analyst Michael Hewson.
Portugal had fought hard against a rescue, arguing that it was a different case from Greece and Ireland, which were both rescued last year by EU/IMF bailout loans.
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