The euro held near a record high against the dollar on Wednesday due to its yield advantage, while the Australian dollar climbed to a 24-year peak versus the US currency on data showing a jump in core inflation in Australia.
While the euro trimmed some gains after climbing above $1.6000 on Tuesday for the first time since its 1999 inception, it seemed poised to rise further given the outlook for US and euro zone interest rates, traders said. "While the euro might not rise rapidly, it will probably stay on a solid footing," said the head of foreign exchange sales for a US investment bank in Tokyo.
"The market's theme is inflation. Currencies of countries that have expressed concerns about inflation are being bought while currencies of countries that will likely have a hard time raising interest rates have been weak," he said. The euro was steady at $1.5995 after rising to $1.6002, just short of an all-time peak of $1.6020 hit on electronic trading platform EBS on Tuesday.
The euro was also holding at 164.80 yen hovering near a four-month high of 164.94 yen hit on EBS on Tuesday. The dollar held steady near 103.00 yen having pulled back from a seven-week high of 104.66 yen hit late last week. The Australian dollar climbed to a 24-year high of $0.9517 after data showed that core inflation in Australia accelerated to its fastest pace in nearly 17 years last quarter.
The rise in core inflation was higher than many had expected and suggested that Australian interest rates would remain at a 12-year high of 7.25 percent for some time.
Traders said there was limited reaction to a Wall Street Journal report that quoted European Central Bank Governing Council member Christian Noyer as saying that markets had read too much into his comments on interest rates on Tuesday. The euro's rally on Tuesday had been stoked by remarks by European Central Bank officials, including Noyer's comments in an interview with French radio network RTL, that stirred talk that the ECB's next move may be to raise interest rates.
The European Central Bank is expected to keep interest rates on hold at 4.0 percent for a while, in contrast to the US Federal Reserve, which is expected to lower interest rates from the current 2.25 percent later this month.
The euro has also been supported by the recent jump in crude oil prices, which hit a record high on Tuesday underscoring market expectations that the ECB would need to stay vigilant on inflationary pressures.
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