Bloomberg News

Euro Set for First Weekly Rise in a Month on ECB Rate Prospects

June 30, 2011

July 1 (Bloomberg) -- The euro was set for its first weekly advance in a month against the dollar on speculation the European Central Bank will raise interest rates next week and as Greece makes progress in avoiding default.

The 17-nation euro gained against most of its major counterparts this week after ECB President Jean-Claude Trichet reiterated yesterday ahead of the July 7 meeting that policy makers are in a state of “strong vigilance” against inflation. Greek Prime Minister George Papandreou won approval to authorize an austerity plan needed to keep aid flowing to Greece. The Dollar Index headed for its first weekly drop in a month.

“I think an interest-rate hike next week is pretty much a done deal for the ECB,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The yield differential will continue to provide support for the euro.”

The euro traded at $1.4491 as of 8:18 a.m. in Tokyo from $1.4502 in New York yesterday, when it touched $1.4538, the highest level since June 10. It’s set for a 2.2 percent weekly advance. The currency was at 116.91 yen from 116.84 yen. The dollar bought 80.67 yen from 80.56 yen.

The Dollar Index, which tracks the U.S. currency against those of six major trading partners, was little changed at 74.403 and set for a 1.7 percent drop this week.

Investors are betting the ECB will add 71 additional basis points to its benchmark interest rate in the next 12 months, a Credit Suisse Group AG index based on swaps showed yesterday. That compares with 46 basis points on June 29.

Papandreou’s Package

Papandreou won the vote by 155 to 136 to implement a 78 billion-euro ($113 billion) package of tax increases and asset sales, a condition of receiving further European Union aid. The premier is seeking an “acceleration of the absorption” of planned aid funds in order to help the Greek economy exit from recession, according to an e-mailed statement of a letter he wrote to European Commission President Jose Manuel Barroso.

Manufacturing in the U.S. began to cool in the aftermath of Japan’s earthquake in March and as raw-material costs climbed. The Institute for Supply Management’s factory index fell to 52 in June, the median estimate of economists surveyed by Bloomberg showed before the today’s data. That’s the lowest level since August 2009. Readings above 50 signal expansion.

The China Federation of Logistics and Purchasing will release a report on its Purchasing Managers’ Index this morning. The manufacturing index probably declined last month to the lowest level since July, according to economist estimates.

--Editors: Jonathan Annells, Rocky Swift

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.

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


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