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Euro rises but ECB meeting watched

Thursday, February 07 09:40:21

The euro edged higher today on buying by Asian sovereign investors, although most were cautious about aggressively adding bets in favour of the single currency before a European Central Bank rate decision.

While the ECB is widely expected to keep interest rates on hold when it announces its decision at 1245 GMT, investors will be on the lookout for comments from bank President Mario Draghi about any negative impact of a strong currency on the fragile euro zone economy.

While chances of that happening are slim, given the trade-weighted euro has risen only 3 percent since early last month, any hint of discomfort could drag the currency lower. On the other hand, if he sounds unconcerned by the euro's rise, the single currency is likely to bounce.

"The markets have been on hold ahead of the ECB meeting and there was some position consolidation prior to that," said Neil Mellor, currency strategist at Bank of New York Mellon

"The key question Draghi will be asked is about currency wars, and he will likely say currency moves should be set by the markets, leading most to assume that the ECB is not prepared to do anything and the euro will probably go a little higher at the end of the meeting."

The euro was up 0.3 percent at $1.3563, holding above this week's trough of $1.3458 plumbed on Tuesday and well shy of a 15-month peak of $1.3711 set on Feb. 1.

The single currency was up 0.4 percent at 127.22 yen , not far from its 34-month high of 127.71 yen hit on Wednesday on reported demand from some Russian and Middle East investors, traders said.

Draghi sounded optimistic about a euro zone recovery last month, helping set the stage for a sharp euro rally, lifting it against the dollar and yen and to a 15-month top against sterling.

The euro has risen more than 2 percent against the greenback so far this year and over 10 percent versus the yen, triggering strong protests from French politicians who fear a strong euro could derail exports and threaten a nascent euro zone recovery.

Germany has said the euro is not over-valued. ( C) Reuters