Brent crude prices hovered close to 32-month highs on Tuesday as markets focused on fears that unrest in producer states in Africa and the Middle East could disrupt supply, while stocks snapped a five-day winning streak.
The euro pulled back from a five-month high against the dollar, hurt by a one-notch downgrade of Portugal’s credit rating by Moody’s Investors Service, which said the country’s incoming government would need to seek financial aid.
Portuguese government bond yields traded around euro lifetime highs.
Investors’ assessment whether the single currency can make fresh gains given that market players have already positioned themselves for interest rate rises in the euro zone during 2011 also put pressure on the euro, which has risen 6,1% against the dollar and 10,2% versus the yen this year.
“There is a lot of good news priced into the euro already and (ECB President Jean-Claude) Trichet will have to support the rate view to keep the positive momentum,” said Niels Christensen, currency strategist at Nordea in Copenhagen.
The European Central Bank is widely expected tomorrow to raise rates by 25 basis points from a record low of 1% to tame inflationary pressures.
The euro was down 0,2% at $1,4194, off a five-month high of $1,4268 hit on Monday, while the dollar was up 0,1 % against a basket of major currencies.
Federal Reserve Chairman Ben Bernanke said late on Monday that the recent spike in inflation was unlikely to persist.
But a sustained higher oil price could pose a serious threat to the global economic recovery and dampen risk appetite, and commodity price pressures saw silver rise to a 31-year high.
“It’s interesting that the recent rally in oil has had virtually no impact on equities. It was just over a month ago where equities markets were nervous about the impact of oil prices on the economy,” Deutsche Bank strategist Jim Reid said in a note.
