Euro Wavers Despite ECB Rate Hike
The euro steadied after steep early losses versus the dollar on Thursday, as European Central BankPresident Jean-Claude Trichet indicated that today's modest interest rate hike may be the start of a tightening cycle.
In remarks that some will take to mean the ECB intends to further lift rates in the coming months, Trichet said interest rates remain "low" amid rising consumer prices.
Surprising nobody, the ECB increased the benchmark interest rate by 25 basis points to 1.5 percent. The hike was signaled last month by Trichet, who said the ECB was strongly vigilant in its mandate to provide price stability.
While the interest rate between the euro zone and U.S. is likely to widen, economic and fiscal problems on Europe's periphery continue to make the euro a risky bet.
The euro slipped to $1.4220 in the aftermath of the rate decision, but was holding at $1.4270 during Trichet's somewhat hawkish press conference.
In economic news from the U.S., employment in the U.S. private sector increased by much more than expected in the month of June, according to a report released by payroll processor ADP, with the data easing some of the recent concerns about the strength of the labor market.
The report showed that private sector employment increased by 157,000 jobs in June following an increase of 36,000 jobs in May.
The euro steadied near Y116.10 versus the yen after losing ground in the previous session, but fell further to GBP 0.8910 against the sterling.
The Bank of England left its key interest rate unchanged at a historic low again as expected and maintained the size of the quantitative easing at GBP 200 billion.
At the end of two-day rate setting meeting, the Monetary Policy Committee led by Governor Mervyn King decided to retain the interest rate at 0.5 percent.
A slight rebound took the euro to CHF 1.21 versus the Swiss franc, helping the euro stay away from a recent record low near CHF 1.18.
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