LONDON (Thomson Financial) - The euro edged higher against the dollar as the US currency's recovery overnight began to lose momentum.
The dollar had gained after both European and Japanese officials expressed concern about the recent sharp rises in their currencies against the US unit. Market players, however, are sceptical about the prospect of actual intervention to prop up the dollar, while there are still no fundamental reasons to buy the US currency.
'It is very difficult to make any case for the dollar to strengthen at the moment,' said Robert Howard at Thomson IFR Markets.
'The ECB will have to actually intervene or to surprise the market with an interest rate cut on Thursday,' he said.
In this respect, Thursday's interest rate decision by the European Central Bank -- where rates are fully expected to be left at 4.00 pct -- and president Jean-Claude Trichet's accompanying press conference will be closely watched, particularly for any comments by Trichet on the euro, Howard said.
The other factor to consider is whether there is any consensus within Europe on a need for intervention, particularly from Germany, while rate-setters may consider that a strong currency will help keep inflation down.
Speaking late yesterday, euro group president Jean-Claude Juncker said current exchange rates do not reflect economic fundamentals and that excessive volatility is not desirable for growth. He tempered these comments this morning, however, by saying the real economy is not being hurt by the euro's strength.
European Central Bank Governing Council member Guy Quaden meanwhile called on the US to reiterate that it favours a strong dollar, while Japanese officials warned about the strong yen's impact on consumption and company earnings.
Among other currencies meanwhile, the Canadian dollar was steady ahead of the Bank of Canada rate decision this afternoon.
The currency came under pressure yesterday after very weak GDP data increased speculation that the BoC could opt for a 50 basis point rate cut.
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