BS: Euro Declines as ECB’s Trichet Says Inflation Risks ‘Balanced’
Feb. 3 (Bloomberg) -- The euro fell for the second day against the dollar as European Central Bank President Jean- Claude Trichet said inflation risks are “broadly balanced,” dimming the prospects of an increase in interest rates.
The dollar gained versus most of its major peers before U.S. data that are forecast to show services industries grew for a 14th month and hiring increased in January. The pound climbed against the euro after a report showed U.K. services companies returned to growth in January. The Australian dollar gained as reports on trade and building permits added to signs of resilience in the economy.
“The markets at least were expecting a ratcheting up in hawkishness,” said Simon Smith, chief economist at FXPro Financial Services Ltd. in London. “He’s not really stepped it up a gear as some were expecting, hence the fall in euro and small decline in short-term rates.”
The euro fell 0.9 percent to $1.3684 as of 1:55 p.m. in London. The common currency was 0.6 percent weaker at 111.93 yen. The dollar climbed 0.3 percent to 81.79 yen.
Higher prices were prompted “mainly” by rising energy and commodity costs and that this “has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon,” Trichet said at a press conference in Frankfurt today. “Very close monitoring is warranted,” on inflation, he said.
Rates Unchanged
The euro advanced 2.2 percent against the greenback this year as investors bet the European Central Bank will raise borrowing costs before the Federal Reserve. European inflation accelerated last month to the fastest since October 2008, according to a preliminary estimate by the region’s statistics office on Jan. 31. Trichet said on Jan. 26 the ECB will “do what is necessary” to maintain price stability.
The ECB left its benchmark interest rate at a record low of 1 percent today, as forecast by all 58 economists in a Bloomberg survey.
“The market got a little bit ahead of itself in pricing in an interest-rate hike as soon as this summer,” said Jane Foley, a senior currency strategist at Rabobank in London. “We don’t expect the ECB to be hiking rates until October or November so there’s room for a little bit of disappointment, which could result in a correction in euro-dollar.”
‘Improving Nicely’
The dollar strengthened against 15 of its 16 major counterparts tracked by Bloomberg. U.S. service industries, which make up about 90 percent of the economy, are growing at the fastest pace since May 2006, a report from the Institute for Supply Management will show today, economists projected in a Bloomberg survey. The ISM’s non-manufacturing gauge for January matched December’s reading of 57.1, they said. A reading above 50 signals growth.
“Some of the data that’s been coming out of the U.S. suggests that the economy there is improving quite nicely and the market is starting to factor in the possibility that the payrolls data will be on the stronger side,” said Michael Derks, chief strategist at FxPro Financial in London.
A report by the Labor Department may show fewer Americans filed first-time claims for unemployment insurance payments last week. Applications for jobless benefits declined 34,000 to 420,000 in the week ended Jan. 29, a separate survey indicated. Economists say tomorrow’s Labor Department report will show nonfarm payrolls climbed by 140,000 workers in January after a 103,000 gain in December.
U.K. Services
“A strong NFP will solidify the recent upbeat performance in the U.S. economy and likely lead to higher yields, pushing dollar-yen higher,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note.
The pound climbed to a three-month high against the dollar after a report showed U.K. service companies returned to growth in January, boosting speculation the Bank of England has room to raise interest rates this year. The gauge of U.K. services activity jumped to 54.5 from 49.7 the previous month. Readings above 50 indicate growth.
“A strong rise in the services data has allowed the pound to gain ground this morning,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Plc. in London.
The British currency advanced as much as 0.5 percent to $1.6279, the strongest intraday level since Nov. 5, before trading at $1.6184. Sterling appreciated 0.9 percent to 84.56 pence per euro.
Building Permits
The Australian dollar gained against all its major counterparts as reports on trade and building permits added to signs of resilience in the economy. The currency appreciated against the yen for a fourth day even as a storm approached Queensland just weeks after the city of Brisbane was devastated by flooding.
“We had good trade data, there are some concerns over the cyclone but the market looked at this one data print and saw it in a fairly positive light, that’s the main driver,” said Chris Walker, a foreign-exchange strategist at UBS AG in London.
The number of permits granted to build or renovate houses and apartments in Australia advanced 8.7 percent in December from November, when they fell a revised 3.9 percent, the Bureau of Statistics said in Sydney today. A separate report showed the trade surplus was A$1.98 billion ($2 billion) in December, compared with the median estimate of A$1.6 billion in a Bloomberg News survey of economists.
New Zealand’s dollar fell against its Australian counterpart for a fifth day. Traders cut bets on interest-rate increases in the nation after its fourth-quarter unemployment rate rose to 6.8 percent from 6.4 percent in the previous three months, more than economists forecast.
Finance Minister Bill English said the government’s plan to lower the fiscal deficit would reduce the need for the central bank to raise rates and ease upward pressure on the New Zealand dollar. The current exchange rate is an “impediment” for the country’s exports, he said in an interview with Bloomberg News.
The so-called kiwi was 0.2 percent weaker at 77.16 U.S. cents and 0.5 percent weaker at NZ$1.3120 per Australian dollar.
--Editors: Matthew Brown, Mark McCord
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net. Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
