Bloomberg: Euro May Drop: Trichet Reiterates He Isn’t Planning `Repeated’ Rate Rises

Nov. 24 (Bloomberg) — The euro may drop 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 $1.1817 at 7:56 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 118.76, from 118.73.

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’s decline may be short-lived in the event a report
from the Ifo institute today shows optimism among German
executives held near a five-year high this month.

Ifo’s business confidence index was 98.6 in November from
98.7 last month, the highest since October 2000, the median of 44
forecasts in a Bloomberg survey shows. The institute releases its
report at 10 a.m. in Munich.

“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.

The yen may drop 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.”

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