The euro rose against the dollar Monday as traders seized on hawkish comments from European Central Bank president Jean-Claude Trichet. The euro bounced around a narrow trading range throughout the morning before breaking higher against the dollar after Trichet reiterated in a Wall Street Journal interview that the central bank would respond to ongoing inflation by raising interest rates. The higher rates would make the euro a more attractive investment option than the lower-yielding dollar and yen. The U.S. and Japan are expected to hold their interest rates near zero for the foreseeable future.
"Trends continue in the euro's favor," said Steven Barrow, head of G-10 strategy at Standard Bank in London.
Trichet first floated the idea of a rate hike two weeks ago, helping set off a sharp rally in the euro. The euro has also been buoyed recently by passable bond auctions in Portugal and Spain, two countries which market participants consider susceptible to the ongoing sovereign-debt crisis.
The euro is up about 6% since hitting a four-month low on Jan. 10.
Traders also received another batch of relatively upbeat economic data from the euro zone. Private-sector growth accelerated to a six-month high in January. Growth in the services sector helped offset a modest slowdown in the pace of manufacturing expansion in the 17-nation bloc. (more)
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