The Euro managed to wipe away losses against the greenback incurred in the Asian session to hit a new 16-month high at 1.4651. Euro gained over 120 pips from the opening level of 1.4530, supported by demand from sovereign investors, with expectations that the U.S. Federal Reserve will not tighten monetary policy.
Additionally the single currency also got a boost from a successful debt auction in Spain. There was a good response to a sale of short-term Treasury bills. That helped erase losses made after some investors reacted to comments from European Central Bank President Jean-Claude Trichet on the need for a strong dollar, thereby closing their long euro positions.
Contrary to the ECB which has already recently raised its benchmark interest rate by 25 basis points, the US Fed will not likely change its monetary policy. Focus is on Ben Bernanke’s news conference after the FOMC meeting tomorrow to see if he will give any hints of what the Fed will decide to do.