Euro rises to highest since March 2005 on prospects for rates

Nov 27 | Updated: Nov 28 2006, 09:26am hrs
The euro gained to the highest since March 2005 against the dollar and reached a record against the yen on speculation interest rates in Europe will rise faster than in the US and Japan.

Reports this week in the euro region will probably show faster inflation, prompting traders to bet the European Central Bank will raise rates at least twice more. French Finance Minister Thierry Breton said European finance ministers may discuss the euro's 10.7 % gain versus the dollar this year at a meeting today and tomorrow.

The euro rose to $1.3115 at 7:32 a.m. in New York, from $1.3094 on Nov 24. The currency advanced to a record high of 152.49 yen before trading at 152.24. Against the dollar, the yen traded at 116.07 from 115.90.

U.S. stock markets declined last week, partly on concern over the declining dollar. The Dow Jones Industrial Average fell 0.5 percent last week.

The U.S. currency headed for the longest losing streak in seven months before Fed Chairman Ben S Bernanke speaks tomorrow on the economy and reports that may show a deepening housing slump. The yen fell on speculation Japanese investors will keep buying higher yielding assets overseas and favor European debt.

Bernanke will acknowledge the economy is underperforming the Fed's expectations,'' said Harvinder Kalirai, head of research in Sydney at State Street Corp., which serves as a custodian for $10.7 trillion of assets. This break lower in the dollar is likely to continue. The Frankfurt-based central bank has lifted borrowing costs five times from a six-decade low in December, to 3.25%. The Federal Reserve has left rates unchanged at 5.25 percent for the past three months, after a two-year rate increase cycle. The Bank of Japan raised rates in July for the first time in almost six years, to 0.25%.

Bloomberg