Euro Finds Footing Amid Inflation Concerns
The euro steadied on Tuesday, underpinned by speculation the European Central Bank will tighten monetary policy despite lingering weakness on the fringes of the euro zone.
In the absence of bad news on the region’s sovereign debt crisis, the single currency was able to take back a small portion of its losses from the previous few sessions.
The ECB chose to combat inflationary pressures by hiking interest rates this months, and analysts expect further tightening in the coming months.
Markets continued to react to S&P’s warning that U.S. debt may be downgraded unless law makers can take steps to balance the national budget.
The euro held near $1.43 versus the buck, edging back toward a 16-month high of $1.4519 set earlier in April.
In economic news from the U.S., housing starts and building permits both increased in March, according to figures released Tuesday by the Commerce Department.
Housing starts rose 7.2 percent, while building permits increased more than 11 percent.
Meanwhile, Eurozone private sector activity growth accelerated unexpectedly in April, suggesting no major impact on the euro area from the disaster in Japan, survey results from Markit Economics showed Tuesday.
There are no alarming signs of second round effects of inflation in the eurozone yet, but there is a need to remain alert, the European Central Bank President Jean-Claude Trichet said in a video interview to the Wall Street Journal on Monday.
The euro edged higher to Y118 versus the yen, and to CHF 1.2850 versus the Swiss franc.
China has “considerable” room for further raising the reserve requirement for banks, the People’s Bank of China Vice Governor Hu Xiaolian said, according to comments published on the central bank website Tuesday.
