WORLD FOREX: Euro Rises Vs Dollar




The euro gained against the dollar in Asia Tuesday as firm share prices in most Asian markets buoyed risk sentiment, while expectations grew that the European Central Bank may raise interest rates ahead of the U.S. and Japan, benefiting the common currency.

Asian shares gained broadly after a strong performance on Wall Street, with the Australian market bolstered by news of lower-than-expected inflation. Japan's Nikkei Stock Average was up 1.1% while Australia's S&P/ASX 200 was 0.5% higher. Markets in South Korea and Hong Kong also gained.

Also helping the euro are growing expectations the euro-zone may raise key interest rates to combat rising inflation in the coming months, while the U.S. and Japan likely continue on the easing path, dealers said.

"Speculation is growing that the euro-zone will be the first to raise interest rates among major economies, Japan, the U.S. and the euro-zone," said Tomohiro Nishida, senior dealer at Chuo Mitsui Trust and Banking.

"Although Europe has a long way to go to get its fiscal mess in order, recent economic data show the economy is expanding. And with bond yields much higher than their U.S. counterparts, the euro is getting plenty of support," said Croy David, senior interest rate strategist at ANZ Bank in Wellington.

The Bank of Japan's policy board decided Tuesday to keep its easy monetary policy unchanged, as stable financial markets and growing optimism toward the economic outlook give it room to gauge the effects of "comprehensive monetary easing" announced in October.

Dealers said no immediate reaction was seen in the foreign exchange market to the Japanese central bank decision.

In Europe, attention will likely focus on the first sale of up to EUR5 billion of bonds by the European Financial Stability Facility, dealers said.

"The sentiment (for the euro) will get another boost if the bond sales attract a great deal of demand," Kenichiro Ikezawa, fund manager at Daiwa SB Investments.

Ikezawa said the euro may rise to 1.3740 later in the global day.

The euro was at $1.3656 as of 0450 GMT from $1.3638 late Monday in New York, according to EBS. The dollar was at Y82.44 from Y82.53, while the euro was at Y112.59 from Y112.55.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.933 from 78.038.

Elsewhere, the Australian dollar fell against the dollar on weaker-than-expected Australian consumer price index data for the fourth quarter. The Australian dollar was at $0.9956 from $0.9987.

The Australian consumer price index rose 0.4% in the fourth quarter of 2010 from the third quarter, and 2.7% from a year earlier, the Australian Bureau of Statistics said Tuesday. Economists on average had expected the CPI to post a gain of 0.7% in the quarter.

Economists said the Reserve Bank of Australia, which targets inflation at 2%-3%, now looks likely to be sidelined until the second half of 2011