Forex Pros - The euro surged against the U.S. dollar on Thursday, trading close to a four month high after European Central Bank President Jean-Claude Trichet said inflationary risks are to the upside and "strong vigilance" is required.
EUR/USD hit 1.3971 during European late afternoon trade, the pair's highest since November 8; the pair subsequently consolidated at 1.3946, rising 0.58%.
The pair was likely to find support at 1.3742, Wednesday's low and resistance at 1.4084, the high of November 8.
Speaking after the banks policy setting meeting, Mr.Trichet said, ''an increase in interest rates at our next policy meeting is possible''. He emphasized that an increase was not certain and would not necessarily signal the ''start of a series of interest rate increases.''
Earlier in the day, the bank's Governing Council held its official cash rate at 1%, where it has been since May 2009.
''The information which has become available since our meeting on 3 February 2011 indicates a rise in inflation, largely reflecting higher commodity prices,'' Mr. Trichet said.
''Strong vigilance is warranted with a view to containing upside risks to price stability,'' he added.
The euro was also higher against the pound, with EUR/GBP soaring 0.84% to hit 0.8563.
Also Thursday, a government report showed that U.S. jobless claims fell to a two-and-a-half-year low last week.
The U.S. Department of Labor said the number of people claiming initial jobless benefits in the week ending February 26 unexpectedly dropped to a seasonally adjusted 368K, confounding expectations for an increase to 400K.
A separate report showed that service sector activity in the U.S. grew in line with expectations in February, expanding for the 15th consecutive month.