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FX round-up: ECB voices concern over euro's strength

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Date: Wednesday 05 Mar 2008

LONDON (ShareCast) - Sterling rallied against the euro in London trading Tuesday after European Central Bank (ECB) officials voiced concerns about the European currency’s strength.

Both the ECB and the Bank of England are scheduled to hold rate setting meetings this week and neither central bank is expected to announce any changes.

Sterling, however, benefited from the perception that the Bank of England is less likely to rush through the next rate cut in the wake of Purchasing Managers Index data on Monday which showed activity in the UK manufacturing sector slowling marginally less than expected, while prices are on a fast track upwards.

In the US, the dollar fell back against most major currencies but made headway against the Canadian dollar after the Bank of Canada cut its benchmark rate by half a point to 3.5%. The greenback also improved against the Australian dollar after the Reserve Bank of Australia’s widely anticipated quarter-point increase in its key interest rate.

The euro strengthened 20 cents to $1.5212 against the US currency while sterling put on about 40 cents to $1.9863 in late trading in New York, after Federal Reserve Governor Frederic Mishkin said that inflation risks have been overstated. Mishkin believes a possible recession is of greater concern to the Fed, thereby raising hopes of yet more interest rate cuts.

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