Euro Holds Against Dollar After Hitting 7-Week Peak

LONDON -- The euro held firm Wednesday eyeing seven-week highs it set against the dollar a day earlier amid mounting expectations that the U.S. and euro zone interest rate differential would narrow rather than widen in coming months.

The euro has pierced major chart barriers, staging a near 9 percent gain from its record lows, hit May 19, in the wake of signs that the U.S. economy was cooling down while euro zone data has been showing robust growth in the region.

This has triggered some speculation that the European Central Bank is prepared to raise interest rates by more than the U.S. Federal Reserve this year, with the latest narrowing in the rate gap expected after the ECB policy meeting Thursday, when its 3.75 percent refinancing rate is expected to be raised, traders said.

Bank of Finland Governor Matti Vanhala said Wednesday that euro area interest rates were "quite low."

"The market is very much expecting an ECB rate hike," said Jesper Dannesboe, treasury economist at ABN Amro Bank.

"Euro/dollar has come a long way and sentiment is still positive. It could go another big figure higher but to go up more than that will be difficult in the short-term because the market is heavily overbought now and short-term speculative traders will be tempted to take some of their profits now°" Dannesboe said

The euro was within a half cent of Tuesday's seven-week peak of 96.01 cents. It was up about 9 percent from its record lows of around 88.40 cents that was set May 19. And on Tuesday alone, the euro rose more than 1.5 percent on the day.