Dollar shaken as yuan rumor denied
(Reuters)
Updated: 2005-08-27 09:16

ECB HIKE?

Euro zone data showed that M3 money supply grew at its fastest pace since October 2003 in July, boosting expectations that the European Central Bank will adopt a more hawkish tone.

"An ECB rate hike is only a matter of time. They might hold off for a while, but in the first half of 2006 the markets will start pricing it in," said Kevin Grice, senior economist at American Express Bank.

The University of Michigan final confidence index for August is due at 1345 GMT, and will be watched for further signs that high oil prices are undermining sentiment on economic growth.

A number of potentially market moving events are slated for September, with the key U.S. jobs report due on Sept. 2 and elections in Japan and Germany later next month.

OIL WORRIES

The euro was holding onto gains despite data on Thursday that showed Germany's Ifo business sentiment index unexpectedly dipping to 94.6 in August from 95.0 in July.

That followed a more upbeat survey from the ZEW research institute earlier in the week, which showed investor confidence in the euro zone's largest economy at a 17-month high.

Federal Reserve Chairman Alan Greenspan will appear on Friday at an economic symposium in Wyoming, where he is due to reflect on his 18 years at the helm of the U.S. central bank but is not expected to touch on the outlook for monetary policy.

Some traders, however, said they would be watching for any comments from Greenspan on the recent rise in oil prices to record highs, which they worry could hurt the U.S. economy and give the Fed cause to pause its rate-increasing campaign.

For now the Federal Reserve appears more worried about the impact of rising oil prices on inflation than on growth.

Chicago Fed President Michael Moskow said late on Wednesday that higher U.S. interest rates were needed to keep inflation contained as the labor market tightens and energy prices climb.

The Fed raised rates by a quarter percentage point to 3.5 percent at a meeting earlier this month, its 10th straight rate hike. Most analysts expect the Fed to raise rates to at least 4 percent by the end of the year, and some see them heading as high as 5 percent in 2006.