The euro reached a one-week high against the dollar after European Central Bank Executive Board Member Lorenzo Bini Smaghi said the bank may need to raise interest rates as global inflation pressures mount.
The shared currency erased earlier losses that followed data showing producer prices in Germany rose 1.2 percent, faster than forecast. The pound remained higher against the euro and the dollar amid speculation that inflation may soon force Bank of England policy makers to raise interest rates.
“Yield plays are and have been the main focus of the foreign-exchange markets,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “These guys are ratcheting up their rhetoric and are clearly concerned about what weakness in currencies can do to imported inflation.”
The euro rose 0.1 percent to $1.3627 at 9:10 a.m. in New York and touched $1.3646, the highest level since Feb. 10. Earlier it dropped as low as $1.3546. The common currency gained 0.3 percent to 113.69 yen, from 113.37 yesterday. The dollar was little changed at 83.34 yen, compared with 83.31.
“As the economy gradually recovers and global inflationary pressures arise, the degree of accommodation of monetary policy has to be monitored and, if needed, corrected,” Bini Smaghi said in an interview with daily newsletter Bloomberg Brief: Economics. Commodity-price increases will “have an unavoidable impact” and “it is a key challenge for monetary policy to avoid spillovers and maintain inflation expectations in check,” he said. “This requires the ability to take pre-emptive actions if needed.”
Fastest Pace
Bini Smaghi’s comments suggested officials are becoming more concerned about inflation, which has already breached the ECB’s 2 percent limit and is running at the fastest pace in more than two years. Companies are facing stronger input-price pressures, and forecasters in an ECB survey this month raised their longer-term inflation expectations to 2 percent.
The greenback has declined this week versus 14 of 16 major counterparts as minutes from the Reserve’s January meeting showed the central bank was dissatisfied with job growth and would continue monetary stimulus. Policy makers under Fed Chairman Ben S. Bernanke have held its benchmark interest rate at zero to 0.25 percent since December 2008, and have said it will remain near zero for “an extended period.”
The ECB has kept its key rate at 1 percent since May 2009, helping the euro region haul itself out of recession.
Bini Smaghi, who make his remarks in an interview conducted by e-mail on Feb. 16, said it’s “essential” to continue to anchor inflation expectations.
‘Going Long Euro’
“You juxtapose that with what Bernanke is saying about rates in the U.S., that they’re going to remain low for a while, and you gain more on your interest payments by going long euro versus dollar,” said Tim O’Sullivan, chief trader at FOREX.com, a unit of the online currency trading company Gain Capital in Bedminster, New Jersey. A long position is a bet a currency will strengthen.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six of major U.S. trading partners, fell for a fourth day, declining 0.2 percent to 77.839. It closed at 78.460 on Feb. 11.
The euro dropped 0.5 percent over the past week, according to Bloomberg Correlation-Weighted Currency Indexes, a measure of 10 developed-nation currencies. The dollar lost 1.2 percent, while the Swiss franc gained 1.5 percent.
Source: Bloomberg By
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