Bloomberg News

Euro Near Week High on Bets ECB to Lift Rates Amid Greek Crisis

June 28, 2011

June 29 (Bloomberg) -- The euro was 0.3 percent from a one- week high against the dollar on speculation the European Central Bank will raise interest rates next week even as Greece struggles to avoid a default.

The 17-nation currency traded near a two-week high against the yen after ECB President Jean-Claude Trichet yesterday said policy makers are in "strong vigilance mode," boosting rate- increase expectations. Greece’s parliament today will vote on an austerity package needed to secure more financial aid. The dollar reached the strongest level against the yen in three weeks yesterday as Treasury yields jumped, enhancing the allure of U.S. assets.

“The euro’s got a bit more upside from here," said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. "While we hear a lot about Greece, it’s really a lot of noise because the bottom line is that the European economy is strong enough to get the ECB raising rates.

The euro was at $1.4355 at 8:17 a.m. in Tokyo from $1.4371 in New York yesterday, when it reached $1.4397, the highest since June 22. It’s down 0.3 percent against the greenback this month and up 1.4 percent this quarter. The euro may reach $1.44 in the next day and will head toward $1.50 by the end of September, Capurso said.

The euro was at 116.41 yen from 116.58, after reaching 116.67 yen yesterday, the highest since June 14. The dollar fetched 81.10 yen from 81.12. It reached 81.27 yen yesterday, the strongest since June 2.

‘Anchor Inflation’

The ECB raised its benchmark rate in April for the first time in almost three years, lifting it by a quarter point to 1.25 percent. The central bank will meet on July 7.

‘‘We’re taking the decision progressively to anchor inflation expectations,” Trichet said at a press conference in Amsterdam following a seminar with central bankers from the Asia-Pacific region. “As far as we’re concerned, we’re in strong vigilance mode,” he said, repeating a phrase the ECB uses to indicate a rate increase is imminent.

Greek lawmakers will vote on the austerity package and again later on a measure to implement it. Prime Minister George Papandreou won a confidence vote in parliament last week by a vote of 155-143.

Treasury 10-year yields gained 10 basis points to 3.03 percent yesterday, increasing the appeal of U.S. bonds to international investors. The difference between 10-year yields in the U.S. and Japan widened to 1.94 percentage points, the most since June 14, according Bloomberg data.

--With assistance from Allison Bennett in New York. Editors: Rocky Swift, Naoto Hosoda

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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