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Euro regains lost ground after hitting two-year low

The ailing euro clawed back some ground on Friday after falling to a fresh two-year low against the US dollar, in thin trading with many dealers absent for the Veterans Day holiday.

The euro edged up to US$1.1732 in late European trading, from US$1.1680 late on Thursday in New York. The euro fell as low as US$1.1671 in light volume earlier Friday, the lowest level since November 2003.

The US dollar stood at ?118.04 from ?118.21 on Thursday.

Despite the support for the euro on Friday, analysts said that the single currency would remain under pressure as long as the market expected interest rates in the US to rise faster than rates in the eurozone.

"Traders are remaining squarely committed to the dollar ... attracted by the impressive yields on cash," said Paul Jackson, senior foreign-exchange dealer in New York, with London-based CMC Group.

"Without a revision of the US interest rate outlook no trend change is to be expected," said Michael Klawitter, currency strategist at WestLB.

The US Federal Reserve raised its benchmark rate by a quarter of a percentage point for the 12th consecutive time earlier this month to 4.00 percent and is widely expected to carry on hiking the cost of borrowing owing to concerns about rising inflation.

Meanwhile, the European Central Bank has kept its key rate unchanged at 2.00 percent since June 2003. A weaker euro has diminished market expectations of an imminent interest rate hike from the European Central Bank.

"Over the next three months, we see the dollar remaining stronger. But we think that beyond that time period, the dollar will start to wane again," Daniel Katzive at UBS said.

The yen edged higher against the US currency after better-than-expected Japanese growth figures, which showed Japan's economy grew by 0.4 percent in the three months to September, although that marked a slowdown from the second quarter.

However, trading continued to be led "by a strong dollar because of interest rate differentials," said Kikuko Takeda, a currency analyst at the Bank of Tokyo-Mitsubishi.

In late New York trade, the US dollar stood at 1.3107 Swiss francs from SF1.3153.

The pound was being traded at US$1.7419 after US$1.7406 late on Thursday.
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