The dollar was pushed up by the statement of the European Central Bank that repeated its stance that the brunt of dollar depreciation has to be born by Asian currencies as well as euro, adding to the pressure on the Asian governments to revaluate their currencies.
By midday in Europe the dollar rose to $1.3061 against the euro.
The US trading deficit that hit a new record in November, according to the US trade data released yesterday, put downward pressure on the greenback.
"You can’t ignore the fact that the U.S. has posted record deficits," said a dealer at a European brokerage.
Earlier the European Central Bank’s chief economist Otmar Issing insisted that the Asian governments should allow their currencies to appreciate against the dollar as they are better suited to bear the brunt of the dollar strength.
“On the question of foreign exchange rates, the adjustment at the European level is complete and has also gone too far. The key to solving this... is in Asia and principally China,” Mr Issing said.
Another push for the US currency’s upward movement came from the ECB’s decision to keep the key interest rate unchanged at 2%, a six-year low. The fact that the US key rate, Fed funds, is at a quarter-point higher at 2.25% and can be expected to rise again in the next Fed meeting, added strength to the dollar.
The European monetary officials seemed more worried about curbing inflation expectations than about bringing the euro exchange rate down though the rates can be raised if the economic recovery gains traction.
“It’s necessary to be vigilant and to do everything possible to make sure we don’t see a sustained increase in inflation expectations,’’ said European Central Bank council member Axel Weber yesterday in Frankfurt.
``We see no need to act,’’ said Weber at the Frankfurt Chamber of Commerce’s New Year reception. Still, ``if the economic recovery increasingly takes hold, and at the moment we just expect moderate growth, we expect that our historically low rates will certainly have to be led toward normalization.’’