NEW YORK: The dollar lost value against the euro on Thursday as the European common currency drew buyers on rising hopes of an interest rate hike in the eurozone next week. The European single currency rose to $1.4155 from $1.4129 in New York late on Wednesday. The dollar climbed sharply against the Japanese currency, to 83.20 yen from 82.87 yen Wednesday. The dollar pared the day's losses late in the session after The Wall Street Journal published an interview with a Federal Reserve district bank president who suggested an interest rate increase was "certainly possible" by year-end because of rising inflation. Narayana Kocherlakota, head of the Minneapolis Federal Reserve Bank, said he expected core inflation, excluding volatile food and energy prices, to rise from about 0.8 percent late last year to about 1.3 percent by year end. In the face of a fragile economic recovery, the US Federal Reserve has kept its key interest rate in the ultra-low zero to 0.25 percent range since December 2008. Brown Brothers Harriman analysts said the key driver for most of the Group of 10 currencies, including the dollar, remains "the outlook for monetary policy and indeed the divergences between the major central banks." A European Union report Thursday that showed inflation in the 17-nation eurozone continuing to rise reinforced signals that the European Central Bank is poised to raise interest rates for the first time since mid-2008. Eurozone inflation rose to 2.6 percent in March from 2.4 percent the prior month, putting it well above the ECB's 2.0 percent target for a fourth month. The news "effectively rubber stamps ECB interest rate hike from 1.00 percent to 1.25 percent at its April 7 meeting," said London-based IHS Global Insight specialist Howard Archer.
"The ECB is determined to send out the message that it will be tough on inflation despite the still-difficult economic situations in many eurozone countries and the global economic uncertainties resulting from events in Japan and the Middle East and North Africa," Archer said. A rates rise "is warranted to try to contain households' inflation expectations and companies' pricing expectations," he added. Investors appeared cautious ahead of the US Labor Department's keenly anticipated March jobs data due to be released Friday. High unemployment and a depressed housing market pose stiff headwinds to the recovery which to date has been mainly supported by government spending. Most economists forecast that the world's biggest economy added 185,000 non farm jobs in March, down from 192,000 the prior month, and that the unemployment rate will remain at 8.9 percent. In late New York trade, the pound fell to $1.6027 from $1.6080 late on Wednesday. Against the Swiss franc, the dollar rose to 0.9194 francs from 0.9179 the prior day.
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