FRANKFURT, Germany — The dollar rose against euro Thursday even though the U.S. Federal Reserve said the U.S. economy is “generally weak” and investors mulled the prospects of a eurozone interest rate hike.
The 15-nation euro fell in morning European trading to $1.5403, from $1.5571 in New York trading late Wednesday.
In its Beige Book report, which provides readings on the U.S. economy by region, the Fed indicated Wednesday that Americans are feeling the pinch of rising energy and food costs and the economy remains “generally weak.”
The findings seemed to confirm investors’ concerns as stocks on Wall Street tumbled Wednesday and oil prices rebounded. Oil traded as high as $138.30 a barrel on the New York Mercantile Exchange before settling at $136.38 Wednesday.
Meanwhile, U.S. corn prices on Wednesday surged above $7 a bushel for the first time_ its fifth record in as many days _ spelling higher food prices for consumers.
In Europe, the European Central Bank signaled last week it could raise rates by a small amount at its next meeting to combat inflation in the euro zone. Comments by senior ECB officials this week cemented that expectation, although they also indicated that multiple rate hikes were probably not likely.
Higher interest rates, used to combat inflation, can strengthen a currency by giving investors higher returns on investments, while lower interest rates can weigh on a currency.
“Currency markets remain volatile as central banks continue their rhetoric ahead of the G-8 finance meetings that start tomorrow,” said James Hughes, an analyst with CMC Markets in London.
“It’s almost as if there’s a dawning realization that with energy costs so high, attempting to keep inflation within old parameters is going to cause untold damage to economies,” Hughes said.
The dollar was somewhat higher against the Japanese yen Thursday morning, buying 107.50 yen, from 106.93 Wednesday, while the British pound bought $1.9522, down from the $1.9631 a pound bought in trading late Wednesday.
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