LONDON (AFX) - The euro ticked higher in early trade ahead of the U.S. Fed's rate decision later today, in part helped by European Central Bank president Wim Duisenberg's reassuring comments on the positive outlook for euro zone inflation and indeed the euro. In an interview with the Italian daily La Repubblica, Duisenberg said he believes that the depreciation of the euro against other major currencies is over.
But trading was largely quiet with the market now leaning towards a 25 basis point rate cut in the U.S. after yesterday's favourable U.S. data, dealers said.
The focus remains on the U.S. rate decision and there has been little by way of news overnight, Nick Mertchev, economist at Halifax said.
ECB president Wim Duisenberg's comment to the Italian newspaper proved supportive for the euro although the reasoning for the remark is unclear, Mertchev added.
Euro zone rate cut expectations, bolstered by Duisenberg's comments yesterday also burnished the euro's appeal.
"Given that the market is firmly convinced that rates will decline in July, yesterday's comments by Duisenberg were reassuring as he stressed the positive medium-term inflation outlook. The ECB seems to understand that if it disappoints the market once again, a sell-off in the euro would be inevitable," Michael Klawitter, strategist at West LB said.
Unless the ECB once again changes its tune, rate cut expectations should prove euro supportive over the next three weeks, he added. Meanwhile, sterling took its cue from a stronger euro to notch up gains against the dollar.
Elsewhere, the yen weakened led by the weakness on the Nikkei and a poor reading in the June retail sales numbers, Mertchev at Halifax said.
The yen is likely to undergo a period of volatility with the U.S. Fed decision, Japanese May industrial production data and a Bank of Japan board meeting all scheduled within the next 24 hours, dealers said.