Dollar falls against euro after ECB rate hike

AP News
Posted: Apr 08, 2011 3:22 PM
Dollar falls against euro after ECB rate hike

The dollar fell against most major currencies on Friday, a day after the European Central Bank announced it would raise its key interest rate.

The move showed that international central banks are beginning to hike rates while the U.S. Federal Reserve stays put, said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.

The European Central Bank raised its refinancing rate to 1.25 percent from 1 percent Thursday. Central banks raise interest rates to curb inflation. Higher rates also tend to increase demand for the currency linked to that country or region.

The euro rose to $1.4435 late Friday, its strongest level since January 2010. The euro was worth $1.4297 late Thursday.

The U.S. Federal Reserve has kept the benchmark U.S. rate near zero since December 2008. Minutes released on Tuesday showed that some officials said during a meeting last month that a big jump in energy prices could weaken the economy, prompting a few to suggest the possibility of tightening credit this year. However, no such move was specified, and another group of Fed members, presumably the majority, said the Federal Reserve might need to keep holding interest rates at record low levels beyond this year.

Elsewhere, Europe's top financial officials said Friday that Portugal will need about 80 billion euros ($114 billion) in rescue loans. Portugal is the third European country to seek financial aid after Greece and Ireland received bailouts last year.

Investors were also watching for the outcome of budget negotiations in Washington. Republicans and Democrats are in the final day of talks to reach a budget agreement that would prevent a government shutdown. A shutdown would close some government services that aren't considered essential. A shutdown would also delay the release of most economic reports.

In other trading Friday, the U.S. dollar declined against major currencies from around the world. The British pound rose to $1.6352 from $1.6315 late Thursday. The U.S. currency fell to 0.9098 Swiss franc from 0.9163 Swiss franc, and fell to 95.77 Canadian cents from 95.90 Canadian cents. The dollar was worth 84.89 Japanese yen Friday afternoon, down from 84.96 Japanese yen late Thursday.