Will ECB Raise Interest Rates? Can Euro Support Its Gains?

The euro extended its rally today for the third day on the speculation that the European Central Bank will boost its interest rates even amid the debt crisis in the Eurozone.

ECB President
Jean-Claude Trichet said yesterday that the policy makers are in “strong vigilance mode”, bolstering the outlook that the bank will increase the borrowing costs next week in order to rein inflation. Greek labor unions closed government institutions as people in Greece went on protests against the possible austerity measures and police used tear gas to disperse the protesters. Some economists are worried that the gains of the euro were caused by short-covering and not by optimism for the Eurozone future.

EUR/USD rose from 1.4370 to 1.4427 as of 10:57 GMT today, following the previous drop to 1.4337.

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