Euro rally continues to hurt dollar

AN increase in US consumer confidence appears to be the only obstacle to the euro’s obstinate rise against the dollar.

Ulster Bank financial markets economist Niall Dunne said the euro's all-time high against the dollar looks vulnerable in the coming days with the possibility of it hitting €1.20 but Mr Dunne said that barrier may not fall this week.

"The longer it [the euro rally] continues, the harder it will become to reverse. All we can do is hope that the ECB do heed the warning signs and decide to cut rates next week," he said.

Mr Dunne said tomorrow will see the release of the first estimate of Eurozone consumer inflation, which he expects to fall from 2.1% to 2%.

"That should remove the last official hurdle preventing the ECB from cutting rates. But the official signals remain mixed while politicians across Europe are openly calling for lower rates (most notably France's Finance Minister Mer), ECB officials are less open.

"The only ECB members to break rank and talk of rate cuts are Welteke and Mersch, the latter warning over the weekend that the euro's recent rise may yet prove 'dangerous' to the Eurozone economy. So I hold with my call for a rate cut on Thursday week," Mr Dunne said.

Yesterday, the euro rose to its highest level against the dollar in more than four years, as the US currency's decline triggered selling.

"We heard that there were some stops taken out," meaning investors sold the dollar to limit losses, said Steen Groendahl, an analyst at Nordea Markets in Copenhagen.

"Once it starts it just keeps going, " he said.

Europe's common currency was at $1.1866 at 4.16pm in London from $1.1804 on Friday.

The dollar's record low was $1.1899 per euro on January 4, 1999, as the European currency made its debut.

The euro also reached a record high against the Japanese yen, reaching 138.77 yen from 138.05 yen.

Trading may be less than usual because the London and New York markets are closed for a public holiday, analysts said.

The trend is that the euro is heading north aggressively,' said Johan Kretz, senior strategist at Danske Bank International in Luxembourg. "It doesn't pay to be in the dollar," he said.

Mr Kretz sees the euro rising to $1.19 this week and said he would be a buyer of the currency at $1.1815.