Bloomberg: Euro Declines After Trichet Says Not Planning Series of Rate Increases

Nov. 24 (Bloomberg) — The euro dropped after European
Central Bank President Jean-Claude Trichet told newspapers in
Germany, France and Italy the bank isn’t planning a series of
interest-rate increases.

Trichet told Die Welt, Liberation and La Stampa in an
interview published today that he doesn’t foresee “repeated”
rises

in borrowing costs. Higher rates in U.S., where the
Federal Reserve has lifted its target rate 12 times since June
last year, are pushing the dollar toward its first annual gain
since 2001.

“We’re not looking for rate hikes every month from the ECB
so the euro won’t get the rate support we’ve seen for the
dollar,” said Jeremy Stretch, a currency strategist at Rabobank
Groep NV in London. “The first half of next year will still be
a dollar positive story.”

Against the dollar, the euro traded at $1.1808 at 9:01 a.m.
in London from $1.1823 late yesterday in New York, according to
electronic currency trading system EBS. Earlier today, the euro
fell as low as $1.1793. The dollar was little changed against
the yen at 118.85.

Trichet’s comments echo remarks he made to the European
Parliament on Nov. 21, which spurred a decline in the euro. The
central bank will probably raise its benchmark rate from 2
percent next month, the first increase in more than two years,
according to interest-rate futures.

Business Confidence

The euro remained lower after a report from the Ifo
institute today showed optimism among German executives declined
from a five-year high.

Ifo’s business confidence index fell to 97.8 in November
from 98.8 last month, the highest since October 2000. Economists
had expected the index to be little changed.

“The improvement in business sentiment will trigger buying
of the euro,” said Michiyoshi Kato, vice president of foreign-
exchange sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of
Japan’s No. 2 lender by assets. “The euro has been sold too
much already.”

French executives this month were the most optimistic since
February, an index gauging sentiment among 2,000 manufacturers
showed today. The index rose to 103 in November from 102 in
October, a government report showed.

`Not Supportive’

The yen dropped against the dollar for the first day this
week in Asia after a report today showed Japan’s trade surplus
shrank more than expected in October.

The surplus contracted by more than a quarter last month as
rising domestic demand in the world’s second-largest economy
spurred imports. Higher imports raise the amount of yen that
must be exchanged for foreign currencies.

“The bigger-than-expected decline in the trade surplus
will likely encourage yen-selling today,” said Toshiaki Kimura,
group manager for foreign-exchange and financial-products
trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp, a unit
of the world’s largest lender by assets. “The trade-balance
argument is not supportive for the yen.”

The yen will move between 118.30 and 119.00 against the
dollar, with less-than-usual trading because of the U.S.
Thanksgiving Holiday, Kimura said.

“With markets closed because of Thanksgiving, then
currencies will be range-bound into the weekend,” said Paul
Robson, a currency strategist at the Royal Bank of Scotland Plc
in London. “Trading could be quieter today.”

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