The value of a euro has risen to one point three one dollars for the first time since April last year on speculation the European Central Bank will keep raising interest rates. The euro’s strength comes amid prospects of a slowdown in the US economy and potentially lower interest rates there. The euro has gained 10.4 per cent this year.
Part of the downward pressure of the dollar is linked to China’s reserves. The People’s Bank of China governor has said East Asia needs to reduce its reliance on the dollar which has been interpreted as a sign the Chinese may sell. The euro’s rally is also due to a survey this week showing an unexpected rise in German business sentiment.
The Ifo survey of corporate optimism shows it has reached a 15-year high in Germany. Separate economic data this week in the country – for consumption, exports and investment – were encouraging.
The euro region is poised to grow at its fastest rate in six years. The signs are that the European Central Bank will respond to that by raising the cost of borrowing to stem inflation into 2007.