LONDON (Thomson Financial) - The euro climbed to a fresh all-time high against the dollar after a hawkish European Central Bank monthly bulletin, amid ongoing concern about the US sub-prime mortgage market.
The ECB said it is monitoring inflation risks closely and remains ready to raise interest rates further if necessary.
It added that interest rates remain "on the accommodative side" even after its June 6 rate hike, which took the main refinancing rate to 4.00 pct, and the medium-term inflation outlook remains subject to upside risks.
The bulletin's release pushed the euro to a fresh all-time high of 1.3791 usd.
Later this morning the final reading of euro zone first quarter GDP is likely to keep pressure on the US currency. Quarter-on-quarter growth is expected to be confirmed at 0.6 pct for an annual rate of 3.0 pct -- well above the US' performance, and reinforcing expectations that the European Central Bank remains in tightening mode.
"Arguably the market is looking for suggestions that the ECB will not settle for a single rate hike in September, but that we may see further tightening later in the year," said David Jones, chief market analyst at CMC Markets.
The ECB is widely expected to raise interest rates to 4.25 pct in the coming months, but markets are now looking for hints on where rates will move from there.
Meanwhile news that Kuwait is allowing its currency to appreciate 0.4 pct against the dollar has also weighed on the US currency as it prompted a fresh-round of selling the greenback in the Middle East.
"There seems few catalysts to provide the dollar with some respite in the short-term given the current negative sentiment and spreads/yields moving to the greenback's disadvantage," said Gavin Friend, currency strategist at Commerzbank.
Concern about the market for US sub-prime mortgage-backed credit continued yesterday after ratings agency Moody's issued further downgrade warnings on a further 184 mortgage-backed bonds.
Meanwhile in Japan the yen was slightly stronger following the Bank of Japan's decision by 8 votes to 1 to keep interest rates on hold at 0.5 pct. In the accompanying press conference, BoJ governor Toshihiko Fukui gave no new hints about when rates might begin to rise.
Fukui reiterated that the bank will gradually adjust rates, taking into account downside risks and the upside potential for the economy, but said most BoJ board members want to see more economic data before making a decision.
Ian Gunner, head of research at Mellon Foreign Exchange, said Fukui's comments appear to "reflect some fundamental doubts about where the economy is going and how readily they can pursue their instinctive desire to bring rates back up to more normal levels".
Finally the pound was at fresh 26-year highs against the dollar, shrugging off a survey suggesting that the Bank of England's series of rate rises may now be affecting the UK housing market.
The Royal Institution of Chartered Surveyors said only a net balance of 10.6 pct of surveyors reported price gains in June, well down on the 22.5 pct seen in May and the long run average of 21.6 pct. The latest figure is the lowest since Jan 2006.
Sydney 0517 BST
US dollar
yen 121.95 down from 122.35
sfr 1.2014 down from 1.2051
Euro
usd 1.3786 up from 1.3754
yen 168.16 down from 168.26
sfr 1.6564 down from 1.6575
stg 0.6773 down from 0.6774
Sterling
usd 2.0346 up from 2.0311
yen 248.19 down from 248.43
sfr 2.4455 down from 2.4472
Australian dollar
usd 0.8623 up from 0.8620
stg 0.4239 down from 0.4244
yen 105.21 down from 105.46
rachel.armstrong@thomson.com
rar/bsd
