Euro Rises Against Dollar as Trichet Highlights Inflation Risk
May 8 (Bloomberg) -- The euro rose from an eight-week low against the dollar after European Central Bank President Jean- Claude Trichet said inflation remains the bank's top priority, signaling policy makers won't cut interest rates anytime soon.
Inflation will stay high ``for a rather protracted period,'' Trichet said at a press conference in Athens following the ECB's decision to keep its main refinancing rate at 4 percent today, in line with economists' forecasts. The yen rose as slumping Asian stocks prompted investors to sell higher- yielding holdings funded in the Japanese currency.
``Trichet hasn't changed his tack one bit on inflation,'' said Adam Myers, director of market strategy at Credit Suisse Group in
The euro climbed to $1.5410 as of 10:15 a.m. in
The Japanese currency rose versus all 16 most-traded peers as the MSCI Asia-Pacific Index of regional shares fell 0.9 percent, hurting so-called carry trades in which investors borrow in low interest-rate currencies to lend in higher-return ones elsewhere. The yen advanced to 80.08 per
Pound Gains
The British pound rose against the dollar after the Bank of England kept interest rates unchanged at 5 percent. The currency bought $1.9571, compared with $1.9539 yesterday. All but five of 61 economists surveyed by Bloomberg forecast policy makers would leave borrowing costs unchanged to monitor the impact of the three cuts since December.
The
The South Korean won slumped 2.3 percent to 1,049.49 per dollar, the lowest level since November 2005, after the central bank forecast economic growth will slow. The Philippine peso fell 0.6 percent to 42.695 per dollar on concern gains in oil and rice prices will stoke inflation.
Avoiding Cuts
The ECB has avoided rate cuts to curb inflation even amid concern that the fallout from the
The yield gap between two-year German notes and Treasuries rose to 151 basis points today, from 147 basis points yesterday, boosting the euro's yield advantage over the dollar.
The euro weakened against the dollar earlier after the Financial Times said the
Luxembourg Prime Minister Jean-Claude Juncker, who also heads the group of euro-area finance ministers, said May 2 he's still concerned about the euro. U.S. Treasury Secretary Henry Paulson reiterated support May 1 for a ``strong dollar'' policy.
``The FT story created some negative sentiment overnight, and Trichet's neutral stance squared some of the sentiment,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York. ``Those who were looking for some dovish words from Trichet got disappointed.''
The dollar will still rally as too many investors are bearish on the
Rogers, speaking at the launch of the Barclays Global Agriculture Delta Fund in Singapore today, said the dollar is losing its status as the world's reserve currency and China's yuan would be the ``next best'' replacement in the ``longer term.''
`Phony Optimism'
``Optimism over the global economy and subprime problems was delusive and phony,'' said Tetsuhisa Hayashi, chief currency manager of foreign-exchange trading in Tokyo at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan's second-largest bank by assets. ``The best pick is the yen.'' The yen may rise to 101 a dollar by June 30, Hayashi said.
The European Union said yesterday retail sales declined 1.6 percent in March from a year earlier, the biggest drop since the data began in 1995.
The euro versus the dollar has had a correlation of 0.96 with the price of crude in the past 12 months. A reading of 1 would mean they moved in lockstep.
``The slowdown shown in recent euro-zone data is starting to weigh on the euro,'' BNP Paribas SA analysts led by Hans- Guenter Redeker wrote in a research note yesterday. The euro may fall to $1.48 at the end of this year, while the pound may decline to $1.92, BNP Paribas forecast.
