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ECB expected to hold rates at 4% ECB leaves interest rates at 4%
(about 1 hour later)
The European Central Bank (ECB) is widely expected to keep eurozone interest rates on hold at 4% following its latest meeting. The European Central Bank (ECB) has kept eurozone interest rates on hold at 4% following its latest meeting.
Rates in the region have doubled in 18 months as the central bank has sought to keep inflation in check while economic growth picks up.Rates in the region have doubled in 18 months as the central bank has sought to keep inflation in check while economic growth picks up.
But if rates are held this month it may only be a temporary reprieve, with more rises expected later this year. But the decision is expected to be only a temporary reprieve, with more rises expected later this year.
The euro moved higher against the US dollar before the announcement. The prospect of higher interest rates pushed the euro to recent highs against the US dollar and Japanese yen.
Higher interest rates makes a currency attractive to investors looking for income, which is why it strengthens when a market expects further rate rises.
In Europe, higher interest rates are reflecting stronger growth, then that's taken by the market as being OK Sharon Bell, Goldman Sachs
The euro was trading at $1.364 in late-morning trading in Europe, up from $1.361 on Wednesday and close to the record high of $1.368, set on 27 April.
Global credit tightening
Meanwhile, with the Bank of England expected to raise UK rates to 5.75% from 5.5% on Thursday, the pound continued to trade near 26-year highs against the US dollar.
By contrast, last week the US Federal Reserve again kept its interest rate steady at 5.25% - and there are predictions that rates will remain stable amid concerns that the US housing slump could still spill over into the wider economy.
"In Europe, higher interest rates are reflecting stronger growth, then that's taken by the market as being OK," said Sharon Bell, European portfolio strategist at Goldman Sachs.
"But elsewhere in the UK, there's a bit of risk now in terms of the household sector, and what the impact is of rate rises we have already seen," she added.
"And in the US, as well, there's some concern in terms of the split in terms of the ultimate effect on the housing market."