(Adds details about euro zone money markets)
* Sterling at 4-1/2-year high vs dollar
* Major event risks: U.S. jobs, euro zone inflation
* Fed and BoJ policy meetings also in focus
By Anirban Nag
LONDON, April 28 The euro rose to a two-week
high against the dollar on Monday, aided by higher money market
rates and expectations inflation in the euro zone will tick up
and ease pressure on the European Central Bank to loosen
Sterling soared to a 4-1/2-year high against the dollar
, boosted by robust data and expectations of merger and
acquisition inflows, after Pfizer confirmed it had made
a bid approach to Britain's No. 2 drugmaker, AstraZeneca.
But most are unlikely to take aggressive positions before
major events in the United States and the euro zone. Policy
reviews by the U.S. Federal Reserve and Bank of Japan (BoJ) will
also keep the market cautious in a holiday-shortened week. Many
centres in Europe and Asia will be shut on Thursday for Labour
Day. Japanese markets will be closed on Tuesday.
The euro rose 0.3 percent to $1.3880 and gained 0.4
percent to 141.95 yen. The euro was supported by a
spike in overnight euro zone rates as surplus cash in
the banking system decreased, with banks repaying cheaper loans
taken earlier from the central bank.
That repayment shrank the ECB's balance sheet at a time when
both the Fed and the BOJ were expanding theirs through asset
purchases. Firm money market rates burnish the euro's appeal to
Traders said expectations that euro zone consumer price
inflation could rise when data is released later this week were
also supporting the single currency. Euro zone inflation for
April, due on Wednesday, is forecast to rise to 0.8 percent
year-on-year from 0.5 percent previously.
"We are seeing some inflows into the euro," Altana Hard
Currency Fund portfolio manager Ian Gunner said. "Euro zone
inflation should confirm that we have seen the lows. If
inflation comes in line with expectations, we could see euro
trading at $1.39 when the ECB meets next week."
ECB policymaker Christian Noyer said on Monday that the
euro's strength was a powerful deflationary factor and low
inflation is likely to persist.
The dollar rose against the yen to 102.35, but held
well within its range over the past two weeks. U.S. yields,
which have a good correlation to the pair, nudged higher in
anticipation of encouraging economic data out of the United
States, including jobs numbers at the end of the week.
"There are three clear U.S. highlights: first-quarter GDP
and the Federal Reserve decision on Wednesday and April's labour
report on Friday," ING currency strategist Tom Levinson said.
"GDP may well be soft, but we take comfort from far better
prospects for second quarter. The report should, though, be
offset by a firm ISM survey and 200,000 plus nonfarm payroll
report," he said.
All this would see the Fed trim its asset purchases by
another $10 billion to $45 billion, Levinson said.
The Fed is expected to cut back further on its bond-buying
stimulus, but the BoJ is expected to maintain its stimulus
programme at its April 30 meeting, all of which should see the
dollar supported at lower levels against the yen.
(Editing by Louise Ireland)