SINGAPORE: The euro strengthened against the dollar in Asia on Monday as investors moved into the single currency before an expected interest rate hike by the region's central bank, analysts said. The euro bought $1.4227 in afternoon Asian trade, up from $1.4225 late Friday in New York. It changed hands at 119.67 yen from 119.49.
"The ECB (European Central Bank) is set to hike interest rates at its monetary policy meeting on April 7," said DBS Group Research in a report.
"With the Fed still not expected to hike rates until late 2011, euro/US dollar should continue to appreciate from a widening interest rate differential in favour of the single currency," it added. ECB rate hikes would offer higher returns on investments compared with the ultra-low interest rates set by the US Federal Reserve. The United States is struggling to curtail a soaring budget deficit. Intransigence over spending cuts to rein in the deficit by US policymakers, which could lead to a government shutdown after current funds expire on April 8, was also weighing on the greenback against the euro, DBS stated.
"There are still no concrete signs that the US budget impasse has been resolved, a government shutdown will heighten uncertainties over the federal debt limit which is expected to be hit this month or next," it said.
"Foreign investor confidence in the US dollar will be hurt if US lawmakers fail to raise the federal debt limit." However, the dollar traded at 84.11 yen compared with 84.00 on Friday after the US Labour Department said more than 200,000 jobs were created in March, while unemployment fell to 8.8 percent from 8.9 percent. The dollar fell against Asian currencies, to 43.32 Philippine pesos from 43.42 on Friday, to 30.25 Thai baht from 30.28 and to 8,655.00 Indonesian rupiah from 8,689.00. It also slipped to Tw$29.22 from Tw$29.34, to 1,087.66 South Korean won from 1,092.01 and to Sg$1.2601 from Sg$1.2613.
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