The euro headed for its biggest weekly gain in almost two years, amid speculation inflation pressure may spur the European Central Bank to raise borrowing costs. The common currency was set for a weekly advance versus all of its 16 major peers as traders bet European finance ministers may next week reinforce measures to stem the region’s debt crisis. ECB President Jean-Claude Trichet yesterday signaled he’s prepared to raise interest rates if needed. The euro erased an intraday gain and the Australian dollar dropped after China said it will raise the reserve requirement ratio for banks. “If the periphery is to be ring-fenced, the ECB can concentrate more on price stability,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “People have quite rapidly moved away from the U.S. growth story and are clearly focusing on the euro. Pure hawkishness on the part of Trichet yesterday is a driver for the euro.” The euro was little changed at $1.3365 as of 10:28 a.m. in London after earlier climbing to $1.3457, the strongest level since Dec. 14. It was 3.5 percent higher in the week, the biggest gain since May 2009. The 17-nation currency was little changed at 110.63 yen and the dollar traded at 82.83 yen from 82.81 yen in New York yesterday. The Australian dollar fell 0.8 percent to 98.93 per U.S. dollar. New Zealand’s currency dropped 0.7 percent to 76.57 per U.S. dollar.

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