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Expected eurozone rate hike saps US dollar

The US dollar weakened against the euro on Friday on expectations of higher interest rates in the eurozone and a growing conviction that the US Federal Reserve would keep its rates on hold.

The euro rose to US$1.5611 around 9pm GMT, from US$1.5503 late on Thursday.

The dollar slipped to ¥107.25 from ¥107.97.

The US currency came under pressure during the day on speculation that US Federal Reserve policymakers would make no change in their monetary policy at a meeting on Wednesday despite mounting inflationary pressures.

“Various statements by [Fed] officials had supported the dollar over recent weeks, but market participants remain very uncertain whether the Fed will be able to raise rates,” analysts at Barclays Capital said in a client note.

“Even if members [of the Fed’s rate-setting committee] continue to stress inflationary concerns, the impact of their words is likely to be subject to diminishing marginal returns if unaccompanied by actions,” the analysts said.

At CMC Markets, Ashraf Laidi said the Federal Open Market Committee, while holding rates steady, could even highlight easing inflationary pressures.

In Britain the pound was somewhat stronger, riding on positive momentum from strong retail sales figures released on Thursday.

They showed that sales rose 3.5 percent last month from April, the fastest rate of growth since records began in 1986, despite an economic slowdown in Britain.

In late New York trading, the dollar was at 1.0350 Swiss francs, down from SF1.0452 late on Thursday.

The pound slipped to US$1.9764 from US$1.9725.
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