ECB rate rise fails to pick up the euro

Despite yesterday's announcement of a rate rise to 2.75 per cent by the European Central Bank (ECB), the euro traded lower against the dollar.

This morning the euro stood at 1.2650 to the greenback and at 0.6861 against the UK pound.

It was expected that a quarter of a per cent rise in the headline borrowing rates in Europe would add strength to the eurozone currency.

However, traders backed the dollar as some predicted a steeper rise and failed to find indictors of future plans in ECB president's Jean-Claude Trichet's comments.

On the other side of the Atlantic the dollar has been strengthened on speculation that the US Federal Reserve is concerned about higher rates of inflation and will soon raise interest rates as a consequence.

"The interest-rate-differential story still exists in favor of the dollar,'' Etsuko Yamashita, a currency analyst and chief economist in Tokyo at Sumitomo Mitsui Banking Corp told Bloomberg.

"Investors are looking to [Federal Reserve chairman] Bernanke's speech to reconfirm the Fed's stance on a June rate hike.''

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