Euro stable after hitting three-month dollar high

The euro steadied against the dollar in trading yesterday after it had reached a near three-month high in Asian deals on increased risk-taking by traders.

Traders were gearing up for today’s monetary policy update from the European Central Bank.

In late morning London deals, the shared eurozone unit dipped to $1.3824 from $1.3831 in New York late on Tuesday. It had reached $1.3862 in Asian trade – the highest level since November 9.

The euro had rallied in Asian trading hours earlier as surprisingly strong US manufacturing data encouraged risk-taking, dealers said.

Rapidly growing speculation that the European Central Bank may adopt a hawkish stance against rising inflation pressures at today’s board meeting also pushed up the single currency, they added.

In contrast, the Federal Reserve remains concerned about the slow pace of recovery in the United States.

“The Fed is saying it will keep the monetary easing policy and the markets are seeing the impact from the political unrest in Egypt will be limited.”

He said a series of US economic reports, in particular data released by the Institute for Supply Management, were strong and indicated manufacturing in the United States was accelerating.

The Institute for Supply Management said Tuesday its purchasing managers index rose to its highest level since 2004. The jump was much stronger than anticipated and marked an 18th straight month of expansion.

The European Central Bank is meanwhile likely to ramp up anti-inflation rhetoric when its governing council meets today, but refrain from any concrete steps owing to mixed signals on where the eurozone economy is headed.

The main ECB interest rate will probably emerge from the meeting unchanged at one per cent, a level it fell to in May 2009, economists said.