Wednesday, May 04, 2011 Europe...

...The ECB keeps worrying about inflation while austerity measures are destroying growth prospects. They seem bound and determined to witness rounds of civil unrest. And what is the largest factor that supports a currency (and associated debt in that currency)? Civil order.

The euro rose against the dollar, approaching its highest level since December 2009 on speculation European Central Bank President Jean-Claude Trichet will signal further rate increases after policy makers meet tomorrow.

The shared currency rose versus most of its major counterparts as European services and manufacturing growth accelerated in April. New Zealand’s dollar dropped to a two-week low on the biggest net outflow of residents in more than 10 years. The dollar fell against the euro before a report forecast to show company hiring slowed in April, encouraging the Federal Reserve to keep borrowing costs low.

“The ECB has nailed its anti-inflation colors firmly to the mast, and the Fed hasn’t even got around to starting yet,” said Steven Barrow, a currency strategist at Standard Bank Plc in London. “This euro rally won’t extend too far if the ECB isn’t as hawkish as the market expects.”

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