Sun, Dec 31, 2006 - Page 10 News List

Euro finishes the year off on a high

AGENCIES , LONDON AND TAIPEI

The euro finished the year higher against the dollar on Friday, marking an 11-percent gain for the European single currency against the US unit this year.

The euro was trading at US$1.3197 in late European trading, from US$1.3149 late on Thursday in New York.

The dollar increased to ¥119.03 from ¥118.90 late on Thursday.

Traders said the euro benefited on Friday from data that showed the eurozone money supply, as measured by the broad M3 indicator, expanded 9.3 percent last month after an 8.5 percent gain in October.

The data appeared to support the contention of the European Central Bank that eurozone interest rates need to rise further.

Analysts polled by the financial news agency AFX had predicted an increase of 8.7 percent.

Over the course of the year, the euro has gained 11.4 percent against the dollar, 12 percent against the yen and 2.7 percent against the Swiss franc.

The European currency hit a new record of ¥157.18 on Friday after setting a record against the Swiss currency of 1.6105 Swiss francs on Thursday.

Analysts believe the principal driver of the foreign exchange market this year has been differences in interest rates across economic zones.

Rates in the US peaked before the eurozone, giving momentum to the European currency in recent months, while recent data in Japan has dampened expectations of another rate hike there.

Referring to the gains of the euro on Friday, Calyon analyst Stuart Bennett said the European Central Bank may take some comfort from the detail of the release on money supply.

The data showed that credit growth to residents and the private sector both slowed, but Bennett said that this would be insufficient to prevent further interest rate rises next year.

"The interest rate hikes are having some impact on the money supply data, but not a sufficiently strong enough one to stop the ECB from continuing to hike," he added.

"This should imply at least two more 25 basis point rate hikes in the first half of 2007, taking the refi rate to 4 percent from 3.5 percent currently and providing support for the euro during the first half of 2007," he said.

The dollar had been supported by better-than-expected US data in early trading on Friday, including existing home sales that rose 0.6 percent last month.

It marked the first back-to-back monthly sales gain since early last year, although the price of homes sold fell for a record fourth consecutive month.

The euro was changing hands at US$1.3197 against US$1.3149 on Thursday, ¥157.13 (¥156.39), £0.6738 (£0.6698) and 1.6095 Swiss francs (1.6066).

The US dollar stood at ¥119.03 (¥118.90) and 1.2194 Swiss francs (1.2215).

The pound was being traded at US$1.9587 (US$1.9626).

The US dollar dropped against the NT dollar on the Taipei Foreign Exchange on Friday, losing NT$0.064 to close at NT$32.596.

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