Euro Reverses Losses With Trichet Hawkishness In Focus

The euro rose Monday, reversing earlier losses as the anti-inflationary bias of European Central Bank President Jean-Claude Trichet fed expectations of higher euro zone interest rates, relegating concerns about European debt to the backburner.

Last week, the European Union summit adjourned without a resolution to the 17-nation currency bloc's sovereign debt woes. Coming as it did on the heels of Portugal's government being toppled by the failure of austerity measures, the euro came under selling pressure.

Europe's political environment has become increasingly inhospitable to broad-based reform. The developments prompted some analysts to question whether the mounting uncertainty would keep the ECB from raising borrowing costs to quell price pressures. At the same time, Federal Reserve officials have made increasingly hawkish noises that encouraged dollar buying.

But early Monday, Trichet reiterated his stance on raising rates, which lifted the euro out of its doldrums. In a market that remains fixated on higher-yields--the euro's primary source of strength--traders immediately bought back the single currency after sending it sharply lower.

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