The dollar may fall for the fourth week in succession as currency traders expect European Central Bank (ECB) president Jean-Claude Trichet to signal at least three more increases in euro-zone interest rates when the ECB governing council meets next Thursday.
The US currency fell to $1.2634 per euro last Friday, down 6.6 per cent since the start of the year. This follows a 14 per cent rise against the euro last year, during which the US Federal Reserve board raised interest rates, while euro-zone interest rates remained unchanged.
In testimony to the US Congress, Fed chairman Ben Bernanke last week indicated that the US central bank was likely to slow the rising pace of interest rates in coming months.
"Bernanke buried the dollar this week. If the dollar's interest-rate support is taken off the table, there is very little to prop it up," Boris Schlossberg of Forex Capital Markets LLC said last week.
"There's plenty of room for the euro to gain against the dollar. The market is going to brace itself for hawkish comments from Trichet," said Chris Turner, head of currency markets at ING group in London.
Mr Trichet will hold a press conference following next Thursday's meeting of the ECB Governing Council. That meeting is expected to leave interest rates in the euro zone unchanged.
But in a press conference after the previous governing council meeting in April, Mr Trichet signalled that the council was open to raising rates when it meets in Madrid next June. - (Additional reporting, Bloomberg)
