Euro Pauses After Recent Surge Versus Dollar

The euro gave back a small fraction of its strong recent gains versus the dollar Monday morning, as traders continued to assess the mixed signals being sent by the European Central Bank and Federal Reserve.

Euro Pauses After Recent Surge Versus Dollar

The ECB hiked interest rates for the first time in three years last week, but ECB President Jean-Claude Trichet commented that April’s hike would not mark the start of a series of further hikes.

Still, markets expect the ECB to continue to tighten monetary policy in order to maintain price stability.

Meanwhile, Fed Chairman Ben Bernanke continues to downplay inflation and signal the central bank intends to keep rates near zero as long as possible in support of the fragile economic recovery.

Within the Fed, though, hawkish members are becoming more vocal about the dangers of keeping monetary policy too accomodative for too long.

The euro eased slightly to $1.4425 versus the dollar, down from last week’s 15 month peak of $1.4486.

Looking ahead on the U.S. economic calendar, reports on retail sales, industrial production and inflation for the month of March will be closely watched this week for evidence the economic recovery remains on firmer footing.

The single currency also leveled off versus the yen, moving down to Y122 from a yearly peak of 123.31.

The Bank of Japan on Monday lowered the assessment for seven out of nine regional economies, citing setbacks in production following the Great East Japan Earthquake.

The euro touched a fresh 5-month high of GBP 0.8858 versus the sterling, and held most of its recent gains to fetch CHF 1.3120 against the Swiss franc.

Last week, EU ministers agreed to prepare the financial assistance package to Portugal immediately and to reach an agreement by mid-May.

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