Euro recovers to exceed dollar parity

The euro muscled through the key one-for-one rate against the dollar yesterday, buoyed by gains against a weak yen.

The euro broke above $1 for the first time in four weeks, bolstered by speculation about higher euro-zone interest rates, while the yen suffered from lingering concerns over the pace of Japan's economic recovery. The EU single currency drifted sideways near $1.0060 in New York last night, after racing earlier to $1.0075.

The rise in the euro's fortunes saw it closing at 62.41p sterling yesterday, from 61.70p on Monday. That meant the pound closed at 79.21p sterling from 78.34p.

The euro's rally was helped by speculation that the European Central Bank (ECB) could raise interest rates as soon as its next meeting, following comments by Bundesbank president Mr Ernst Welteke suggesting the ECB had room to tighten monetary policy.

The euro rose rapidly by more than 2 per cent to as high as $1.0075, before taking a breather and moving back to $1.0060.

"I think the market was waiting for a bit of a sell-off in the US equity market to diversify some of their holdings," said Mr Russell LaScala, chief dealer at Citibank in New York.

"People are betting this may be the beginning of a big move in the euro, maybe back up to $1.10," he said.

The euro has languished beneath the psychologically significant $1 level since January 27th, pressed lower by the relative strength of US equity markets and the belief that the US economy will continue to out-perform Europe.