The US dollar gained against the euro in afternoon Asian trade Monday as investors bet the European Central Bank (ECB) will likely keep its key interest rate steady when council members meet this week to decide on monetary policy. "There is significant uncertainty in the market and on the economy that the ECB has to consider, including higher oil prices and a weak financial sector," said Thomas Lam, treasury economist at United Overseas Bank. "I don't think the current backdrop warrants a rate hike."
The ECB is meeting on November 8 and most economists are expecting European policy makers to keep the benchmark rate at 4 percent.
Some economists expect the ECB to increase the key rate in coming months to curb inflation, which accelerated to 2.8 percent in October from 2.1 percent in September. There is a little bit of profit-taking, so the dollar strengthened a bit," said Tim Concon, research head at ING Financial Markets. The dollar's gain is expected to be short-lived on growing speculation of another rate cut in the US by the year-end, which would weaken the greenback further.
The Federal Reserve on Oct 31 cuts its key rate by 25 basis points, sending the dollar plunging against other major currencies. It was the Fed's second rate hike this year as policymakers struggled to rescue the troubled financial sector and keep the economy from slipping into a recession.