Dollar slips ahead of Europe central bank comments

AP News
Posted: Mar 02, 2011 4:46 PM
Dollar slips ahead of Europe central bank comments

The dollar fell against the euro Wednesday as investors anticipated comments from European central bank officials that may point to higher interest rates in Europe.

The euro rose to $1.3860 late Wednesday from $1.3770 Tuesday. Earlier in the day, the euro rose as high as $1.3892, its strongest level since early November 2010.

Rising prices for oil and food have prompted other ECB officials to make comments recently warning on inflation. Investors will scrutinize comments from Jean-Claude Trichet, the head of the European Central Bank, at a policy meeting on Thursday. The ECB isn't expected to announce a change to its key interest rate at that meeting, but a sharper warning from Trichet on inflation would hint at a rate lift that would come sooner than investors had expected.

Lifting interest rates helps counter inflation and tends to support a currency, but can also slow economic growth.

Federal Reserve Chairman Ben Bernanke's testimony to the Senate on Tuesday underscored expectations that the U.S. central bank will keep rates low to support the economy for much longer, and doesn't see rising energy and food costs as a significant threat yet.

However, some analysts say rising oil prices could slow down a recovery. On Wednesday, oil prices rose to settle at $102.23 per barrel in New York as fighting in Libya escalated.

"The market is just starting to realize that $100 plus oil is going to be a serious drag on the recovering markets in the U.S. and Europe," said Joseph Trevisani, chief market analyst at FXSolutions. Trevisani said he expects the U.S. dollar to rise soon as unrest continues in the Middle East and oil prices remain high. The U.S. currency is traditionally seen as a safe investment in times of international turmoil.

In other trading Wednesday, the dollar fell to 81.91 Japanese yen from 81.95 yen, while the British pound rose to $1.6325 from $1.6262. The dollar fell to 0.9240 Swiss franc from 0.9303 Swiss franc, and the U.S. currency fell to 97.19 Canadian cents from 97.49 Canadian cents.

The dollar also tumbled against the Scandinavian currencies and was lower versus most of the major emerging-market currencies in Latin America and Eastern Europe.