Bloomberg: Euro May Climb on Speculation Trichet Will Reiterate Call for Higher Rates

Nov. 21 (Bloomberg) — The euro may rise for a third day
against the dollar on speculation President Jean-Claude Trichet
today will reinforce his view that the European Central Bank is
moving closer to raising rates for the first time in five years.

The euro last week dropped to

a two-year low versus the
dollar on expectations the Federal Reserve’s plan to raise rates
at a “moderate” pace would add to the yield advantage for
holding the U.S. currency. Higher rates in Europe may stop the
rate gap from widening and boost the appeal of the euro. Trichet
late Nov. 18 said the ECB is poised to raise its benchmark
interest rate. Policy makers next meet on Dec. 1.

“Trichet looks really willing to raise rates and is in the
middle of preparations for rate hikes,” said Tetsu Aikawa, a
currency sales manager in Tokyo at UFJ Bank Ltd, a unit of the
world’s largest lender by assets. “The euro looks strong for
the time being, propelled by Trichet’s comments.”

The euro was at $1.1773 at 10:12 a.m. in Tokyo, from
$1.1775 Nov. 18 in New York, according to electronic foreign-
exchange dealing system EBS. It fell as low as $1.1640 Nov. 15,
a level unseen since November 2003. Against the yen, it was at
140.42 from 140.24. The euro may rise to $1.1820 today, Aikawa
said.

The ECB is ready “to moderately augment the present level
of interest rates in order to take into account the level of
risks to price stability,” Trichet said in the speech to a
banking conference in Frankfurt on Nov. 18, after the close of
trading in Asia. “We will withdraw some of the accommodation,
which is in the present monetary policy stance.” He plans to
speak to the European parliament in Brussels today.

`Clear Signal’

Trichet “really gave a clear signal that the European
Central Bank is positioned to raise rates as early as
December,” said Besa Deda, a currency strategist at
Commonwealth Bank of Australia in Sydney. “That will remove
some of the weakness the euro has been under.” The euro may
rise to $1.18 by year-end, Deda said.

Traders boosted bets the ECB will increase rates next month.
The yield on the Euribor futures contract due in December on Nov.
18 rose 9 basis points to 2.53 percent, the highest since March.
The contract settles to the three-month lending rate that has
averaged about 14 basis points more than the ECB’s benchmark
rate since the currency’s introduction in 1999.

All 19 economists surveyed by Bloomberg after Trichet’s
remarks expect the bank to raise the benchmark refinancing rate
by at least a quarter point on Dec. 1. In an Oct. 28 survey,
only one out of 26 economists predicted an increase.

The Federal Reserve has raised its target rate for
overnight loans between banks 12 times since June last year to 4
percent. The ECB has kept its rate at a six-decade low of 2
percent for more than two years.

Trichet makes one of his regular appearances before the
European parliament’s economic and monetary affairs committee in
Brussels at 3 p.m.

Popularity: 1%