Bloomberg News

Euro Strengthens Versus Yen on Bets ECB to Signal Rate Increase

June 09, 2011

June 9 (Bloomberg) -- The euro climbed against the yen and the dollar on speculation European Central Bank President Jean- Claude Trichet will signal today that policy makers intend to raise interest rates as soon as next month.

The 17-nation shared currency rose against all but two of 16 major counterparts tracked by Bloomberg after the ECB kept its main rate unchanged at 1.25 percent, an outcome predicted in a Bloomberg survey of economists. Trichet will hold a press conference at 2:30 p.m. in Frankfurt. The Dollar Index fell before a U.S. report that economists said will show the trade deficit widened to the most in 10 months. New Zealand’s currency climbed to a record after the nation’s central bank said rates will need to rise in the next two years.

“The no-change decision was a done-deal,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The crucial thing is whether Trichet’s language suggests they’re going to hike in July.”

The euro rose 0.4 percent to 116.93 yen as of 12:50 p.m. in London, and appreciated 0.2 percent to $1.4614. It reached $1.4697 on June 7, the strongest level since May 5. The shared currency climbed 0.6 percent to 1.22621 Swiss francs, which weakened against all of its major peers.

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, declined 0.2 percent to 73.817. The pound traded at $1.6423, from $1.6404 yesterday. Sterling gained 0.3 percent to 131.42 yen, and was at 88.98 pence per euro, from 88.90 yesterday, when it reached 89.76, the weakest since May 5.

ECB ‘Hawkish’

“There’s some expectation that the ECB can stay quite hawkish,” said Henrik Gullberg, a London-based currency strategist at Deutsche Bank AG, the world’s biggest foreign- exchange trader. “There’s no independent factor driving euro- franc. It’s more of a euro move ahead of the ECB, with no sign of any involvement from the Swiss National Bank.”

The BOE kept its benchmark interest rate unchanged at 0.5 percent at today’s meeting, an outcome predicted by all 55 economists surveyed by Bloomberg News.

The U.K. central bank will lift the rate by 30 basis points over the next year, according to a Credit Suisse Group AG index based on swaps trading. The ECB will raise its main rate by 79 basis points in the same period, according to a separate Credit Suisse index.

Trichet Signal

All 52 economists surveyed by Bloomberg predicted the ECB would leave its main interest rate unchanged. The central bank raised borrowing costs in April for the first time in almost three years, bringing the main refinancing rate to 1.25 percent.

“President Trichet is expected to signal a 0.25 point rate hike at the July meeting by using the key phrase of “strong vigilance” in describing the stance of the ECB in regard to the inflation risks,” Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in an e-mailed report.

The dollar has declined 4.3 percent against nine other currencies of developed economies in the past three months, according to Bloomberg Correlation-Weighted Indexes.

“The fact that the market seems to be focusing more on worsening cyclical prospects for the U.S., that means we are due for some further dollar weakening,” said Todd Elmer, head of Group of 10 currency strategy for Asia ex-Japan at Citigroup Inc. in Singapore.

New Zealand Rates

The U.S. trade gap expanded to $48.8 billion in April from the $48.2 billion shortfall in March, according to the median of 75 estimates in a Bloomberg survey ahead of the Commerce Department’s report today. The forecast April deficit would be the largest since June 2010.

New Zealand’s dollar gained against all 16 of its most- traded counterparts after Reserve Bank of New Zealand Governor Alan Bollard signaled the central bank will lift interest rates.

The New Zealand currency rose 1.5 percent to a record 82.70 U.S. cents, and advanced 1.6 percent to 66.15 yen.

The central bank’s decision today to keep the benchmark rate unchanged at 2.5 percent was predicted by all 15 economists surveyed by Bloomberg News. Swaps traders are betting the central bank will increase the key rate by 63 basis points over 12 months, up from 56 basis points yesterday, a Credit Suisse index showed.

Australia’s dollar fell versus 13 of 16 major peers after a report from the statistics bureau showed jobs increased by 7,800 in May from the previous month. That compared with the median estimate for a 25,000 gain in a Bloomberg News survey of 25 economists. Full-time jobs declined 22,000.

“It’s still positive growth, slightly lower than the market had expected,” said Tony Morriss, head of interest-rates research in Sydney at Australia & New Zealand Banking Group Ltd. The Aussie “was a little bit weaker on the headline, but this also provides confirmation perhaps the economy is going to be in a slightly softer period of growth.”

Australia’s dollar fell to $1.0594, from $1.0623 yesterday.

--With assistance from Yoshiaki Nohara in Tokyo. Editors: Daniel Tilles, Matthew Brown

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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