Euro begins 2007 in record mood
2007-01-02

Category Euro Nations Slovenia Singapore Japan

The euro struck a near three-week high against the dollar and all-time peaks against the yen and Swiss franc in European trade.

The Tokyo and Singapore markets remained closed for New Year celebrations Tuesday, while US trading was put on hold to allow Americans to mark the recent passing of former president Gerald Ford.

The euro hit as high as 1.3288 dollars in early European exchanges on Tuesday, the highest point since December 13, 2006.

The European single currency also hit 157.72 yen and 1.6112 Swiss francs -- both of which are historic levels.

It later stood at 1.3286 dollars, from 1.3197 dollars late on Friday in New York.

The dollar dropped to 118.75 yen from 118.96 yen late on Friday.

The euro climbed strongly due to expectations that the European Central Bank will continue to hike interest rates during 2007, economists said.

"We expect at least two further 25 basis point increases from the ECB, which will push the refi rate to 4.0 percent by the end of the second quarter from the current 3.50 percent," Calyon analyst Stuart Bennet said.

During the course of 2006, the euro gained 11.4 percent against the dollar, 12.0 percent against the yen and 2.7 percent against the Swiss franc.

Analysts believe the principal driver of the foreign exchange market last year had been differences in interest rates across economic zones.

Interest rates in the US have been held steady since last August at 5.25 percent, giving momentum to the European currency in recent months, while recent data in Japan has dampened expectations of another rate hike there.

The euro is meanwhile now being used by 13 countries after Slovenia became on Monday the first former communist state to join the European Union's common currency.

Slovenia's adoption of the euro comes five years after euro bills and coins were introduced, almost three years after Slovenia acceded to the EU, and 15 years after Slovenia declared independence from the former Yugoslavia.

The euro replaces the tolar, a currency introduced in 1991 as a symbol of the tiny country's independence and an instrument aimed at cutting Belgrade's monetary control over the Slovenian economy.

The euro was changing hands at 1.3286 dollars against 1.3197 dollars on Friday, 157.68 yen (157.08), 0.6734 pounds (0.6733) and 1.6106 Swiss francs (1.6097).

The dollar stood at 118.75 yen (118.96) and 1.2131 Swiss francs (1.2191).

The pound was being traded at 1.9714 dollars (1.9596).

On the London Bullion Market, the price of gold climbed to 640.90 dollars per ounce from 635.70 dollars early on Friday.