Euro rises against dollar on interest rate hopes

AP News
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Posted: Mar 31, 2011 3:36 PM
Euro rises against dollar on interest rate hopes

The euro climbed against the dollar Thursday as an inflation reading in Europe bolstered investor expectations that the European Central Bank will raise interest rates next week.

Consumer prices in euro countries were up 2.6 percent in March, the fastest increase since October 2008.

Central banks raise interest rates to help counter inflation. But higher rates on government bonds increase demand for the currency linked to that country or region.

The euro rose to $1.4198 late Thursday from $1.4121 late Wednesday.

Debt problems in Europe are ongoing. Portugal says its budget deficit last year was larger than expected. The debt-heavy country is trying to avoid a bailout like the ones Greece and Ireland accepted last year. Such a move would be the latest sign for investors that Europe's debt problems might not be easily resolved.

Meanwhile, Ireland's tests on its banks showed that about $34 billion more in aid is needed for its financial sector.

Economic news from the U.S. was better. The number of people who applied for unemployment benefits last week fell by 6,000 to 388,000, according to the Labor Department. Investors are awaiting Friday's unemployment report to see whether the economy added jobs in March. Economists forecast that employers added a net total of 185,000 jobs during the month.

In other trading Thursday in New York, the British pound fell to $1.6065 from $1.6069 late Wednesday. The dollar rose to 83.07 Japanese yen from 82.89 yen, and fell to 0.9163 Swiss franc from 0.9193 Swiss franc. The U.S. dollar also fell to 96.88 Canadian cents from 97.13 Canadian cents.

The U.S. currency was also lower against most currencies from around the world, including the Australian dollar, Scandinavian currencies, currencies in Latin America and the South Korean won.