Thursday, May 5, 2011

Euro Slides as Trichet Signals Rate Rise Won’t Come in June

The euro slid against the dollar and yen after European Central Bank President Jean-Claude Trichet said inflation risks will be watched “very closely,” signaling the ECB may wait until after June to raise interest rates again.
Speaking at a news conference in Helsinki, Trichet refrained from using the phrase “strong vigilance,” which might have signaled a June rate increase. European policy makers left the main refinancing rate unchanged at 1.25 percent today, as predicted by all 48 economists in a Bloomberg survey. Japan’s currency climbed against all of its 16 most actively traded peers. The Australian dollar declined for a fourth day.
The euro dropped 1 percent to $1.4684 at 2:45 p.m. in London, posting the biggest intraday decline since April 18. It earlier climbed to $1.4900. The 17-member common currency slid 1.8 percent to 117.39 yen, while the Japanese currency surged 0.8 percent to 79.93 per dollar.
“By signaling that a June rate hike is not likely, Trichet has put the euro under pressure,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S in Copenhagen. “A June hike has to be priced out of the market.”
The central bank last month raised the rate by 25 basis points, the first increase in almost three years. While inflation accelerated to 2.8 percent last month and economic growth is gaining momentum, higher borrowing costs may exacerbate Europe’s debt crisis, which has already forced Greece, Ireland and Portugal to ask for external help.