BLBG: Euro Rises Against Yen, Pound as Trichet Sees Recession Easing
The euro rose against the yen and the pound after European Central Bank President Jean-Claude Trichet said he sees signs that the worst of the recession has passed.
The 16-nation currency also pared a decline against the dollar as Trichet said at a press conference in Frankfurt interest rates at current levels are “appropriate,” while declining to rule out further reductions. The region’s economic performance will be “much less negative” this year, he said. Policy makers held the main refinancing rate at an all-time low of 1 percent today, in line with economists’ forecasts.
Trichet “hedged himself quite nicely by saying rates are appropriate for now, but it doesn’t mean they will be appropriate in the future.” said Geoffrey Yu, a currency strategist at UBS AG in London. “There was a huge sell-off in the euro half an hour before the conference began. Price action was a bit distorted. I think people are just looking to go back into their short dollar positions.”
The euro advanced to 136.19 yen as of 2:27 p.m. in London, from 135.93 in New York yesterday. It was at $1.4125, from $1.4162 yesterday and as low as $1.4071 earlier. The dollar advanced to 96.44 yen, from 95.99.
The ECB cut the main interest rate last month and said the bank plans to buy about 60 billion euros ($85 billion) of covered bonds to hold down borrowing costs. The central bank will start the program next month and complete it in June next year, buying covered bonds rated not less that BBB, Trichet said today.
Yen Declines
The euro gained 5.5 percent against the dollar since the ECB last met on May 7 as signs the worst of the recession has passed damped demand for the U.S. currency as a refuge. The common currency appreciated 2.7 percent against the yen.
The yen dropped versus 12 of the 16 most-traded currencies after Japan’s Ministry of Finance said domestic investors bought about $10.2 billion more overseas bonds than they sold last week. Futures on the Standard & Poor’s 500 Index of U.S. shares rose 0.4 percent.
“Japanese investors are beginning to get an appetite for foreign investment, which is weighing on the yen,” said David Forrester, a strategist in Singapore at Barclays Capital, a unit of the U.K.’s third-biggest bank. “They will continue to increase their exporting of capital and we expect the yen to be one of the worst performers in the next six months.”
Krona Rises
The Swedish krona rose after Latvia’s central bank said it will maintain the lats peg to the euro until the country adopts the single currency. The bank has responsibility for the lats exchange rate, it added.
Sweden’s Riksbank this week noted a deterioration in the Baltic nations as one of the biggest risks to its banks. The krona fell 2.5 percent against the euro since June 1, when the Baltic News Service cited Latvian Justice Minister Mareks Seglins as saying the government should debate abandoning the system that keeps the lats pegged to the 16-nation currency.
The krona strengthened to 10.8255 per euro from 10.9043 yesterday, after slipping to 10.9842 earlier, the lowest level since April 23. It traded at 7.6646 per dollar, from 7.6992.
Former Swedish central bank governor Bengt Dennis, hired by the Latvian government as an adviser to help it cope with the economic crisis, told Swedish state television SVT on June 1 the Baltic country will need to devalue the currency. Swedish banks have about $75 billion in loans to the Baltic states, according to the Bank for International Settlements in Basel, Switzerland.
Fitch Assessment
The dollar strengthened against the yen after Fitch Ratings reiterated its confidence in the U.S. and U.K.’s top credit grades, citing the countries’ fiscal strength.
“Our confidence in their ability and track record to do the right thing” makes the U.S. and the U.K. AAA-rated borrowers, David Riley, head of sovereign ratings at Fitch, said at a conference in Sydney today.
The dollar completed the biggest weekly decline in two months versus the euro on May 22 after Pacific Investment Management Co.’s Bill Gross said the previous day that the U.S. will “eventually” lose its top credit rating. Standard & Poor’s that day lowered the outlook on Britain’s AAA grade to “negative,” citing the government’s deteriorating finances.
“The rating comments today helped remove a stumbling block on currencies such as the dollar and euro, which faced concerns over rating downgrades,” said Takeshi Makita, a Tokyo-based economist at Japan Research Institute Ltd., a unit of Japan’s third-largest lender, Sumitomo Mitsui Financial Group Inc. “These currencies may gain further momentum.”
Pound Slides
The pound tumbled against the dollar, before recovering, amid speculation that Prime Minister Gordon Brown was poised to resign. A British government spokesman described the rumor as “nonsense.”
Brown’s government has been rattled by three weeks of disclosures by the Daily Telegraph of personal spending by members of the parliament at public expense. The ruling Labour Party may finish third behind the conservatives and Liberal Democrats in U.K. elections today, a poll by ICM Ltd. showed.
The pound traded at $1.6170, after falling to $1.6090, its lowest level since May 28, from $1.6317. It traded at 87.28 pence per euro, after dropping to 87.55.
The Bank of England kept its main interest rate at 0.5 percent today and said it will refrain from increasing gilt purchases beyond the 125 billion pounds ($205 billion) already announced amid signs of an economic recovery. A Halifax report today showed home values unexpectedly rose 2.6 percent in May, the most since 2002.
