April 21 (Bloomberg) -- The euro rose to within a cent of a record against the dollar as European Central Bank officials reiterated concern inflation has accelerated, increasing chances interest rates will stay at a six-year high.
Europe's currency gained for the first time in three days after policy maker Klaus Liebscher said record oil prices are starting to push up wages. The pound fell against the euro on speculation the Bank of England's plan to swap government bonds for mortgage-backed securities won't be enough to revive lending between banks.
``The ECB is so hawkish on inflation that they are going to keep the rate on hold for the next couple of meetings,'' said Steve Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``The euro-dollar has potential to move above $1.60.''
The euro increased 0.8 percent to $1.5937 at 10:31 a.m. in New York, from $1.5817 on April 18. Europe's currency reached $1.5983 on April 17, the highest level since its 1999 debut. It appreciated for a sixth straight day against Japan's currency, increasing 0.4 percent to 164.60 yen, from 163.96. The dollar fell 0.3 percent to 103.38 yen, from 103.67.
The Australian dollar climbed as a government report showed producer prices rose by a record in the first quarter. The price increase supported the central bank's case for keeping interest rates at a 12-year high of 7.25 percent, compared with 2.25 percent in the U.S.
The Aussie rose 0.9 percent to 94.29 U.S. cents, from 93.48 on April 18. It increased 0.4 percent to 97.49 yen, from 96.89.
Weaker Sterling
Sterling weakened after the Bank of England gave details of its plan to swap 50 billion pounds ($100 billion) of government bonds for mortgage-backed securities.
``The Bank of England's plan of injecting 50 billion pounds is not a lot compared with the 1.2 trillion pound mortgage market in the U.K.,'' said Rafael Martorell, chief dealer of spot foreign exchange at BNP Paribas in New York.
The pound dropped the most against the euro since March 17, fueling euro buying against the dollar as well, traders said. The pound weakened 1.3 percent to 80.22 pence per euro, from 79.17. The pound fell 0.6 percent to $1.9851, from $1.9979.
Lehman Brothers Holdings Inc. today recommended investors sell the pound against the dollar as the worst housing slump in 30 years will force the BOE to cut interest rates 1 percentage point to 4 percent by January.
The London interbank offered rate, or Libor, for dollars advanced 1 basis point to 2.92 percent, the highest since March 7, after climbing 20 basis points last week, the British Bankers' Association said today. The overnight dollar rate gained 1 basis point to 2.64 percent.
The dollar remained lower against the euro as Bank of America Corp., the second-largest U.S. bank, reported a 77 percent drop in first-quarter profit. Charlotte, North Carolina- based Bank of America said profit fell as job losses and falling house prices caused more people to miss payments on credit cards and home loans.
The U.S. currency on April 18 rose the most against the euro in more than two weeks after Citigroup Inc., the biggest bank, reported first-quarter revenue above analysts' consensus, fueling speculation that financial firms will weather credit market losses.
U.S. policy makers have cut their main interest 3 percentage points since September to prevent the economy from slipping into a recession on widening financial company losses, while the ECB has kept its target unchanged since June. Futures on the Chicago Board of Trade show 96 percent odds that the Fed will cut its benchmark rate by a quarter-percentage point on April 30 and a 4 percent likelihood of no cut.
Mounting inflation pressure in the euro area may lead policy makers to consider a rate increase, the Wall Street Journal quoted ECB policy maker Erkki Liikanen as saying. His colleague, Axel Weber, who last week said policy makers will assess whether the benchmark rate of 4 percent is high enough to contain ``intolerably'' fast inflation, speaks in Munich today.
The euro zone's inflation rate rose to 3.6 percent in March, the highest in almost 16 years, a government report said on April 16.
``The comments from Liebscher read hawkish and brought support to euro,'' said Michael Malpede, a senior currency analyst in Chicago at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. ``Then the Bank of America earnings came along and weakened the dollar.''
Traders betting on intervention by the Group of Seven nations to stem the dollar's 7.7 percent decline against the euro this year may be disappointed.
JPMorgan Chase & Co.'s index of implied volatility on dollar options has fallen 0.53 percentage point since the G-7 meeting on April 11, when finance ministers expressed concern exchange rates were fluctuating sharply. The index was at 14.5 percent on March 17, the same level at which the G-7 stepped into the market in 1995 to influence prices.
No comments:
Post a Comment