The euro rose against the dollar as European Central Bank President Jean-Claude Trichet said policy makers are “carefully” monitoring inflation, fueling bets the economy is strong enough to withstand higher interest rates. The single currency snapped four days of losses against the Swiss franc, climbing from a record low. The Financial Times reported that European Financial Stability Facility Chief Executive Officer Klaus Regling said Asian investors, including China, may buy Portuguese bailout bonds when the EFSF sells them in June, easing concern that the region’s sovereign-debt crisis will spread. Sweden’s krona gained against the dollar and euro as a report showed consumer and business confidence rose more than economists predicted this month. “We may have moved, with this Asian support, a little back to reality, which is not quite as imminently gloomy as a lot of people wanted to believe,” said Beat Siegenthaler, a strategist in Zurich at UBS AG. Investor attention could “easily come back to central banks and the ECB will once again be the one that wants to continue hiking,” he said. The euro rose 0.6 percent to $1.4169 as of 7:15 a.m. in New York. It depreciated to $1.3970 on May 23, the weakest since March 17. The common currency advanced 0.4 percent to 115.91 yen. The dollar traded 0.2 percent weaker at 81.78 yen. Against the Swiss franc, the euro strengthened 0.3 percent to 1.2326, after yesterday dropping to a record low of 1.2271. ‘Carefully Monitoring’ The ECB needs “to avoid commodity-price increases becoming entrenched in longer-term inflation expectations, which could have second-round effects on wages and prices,” Trichet said at a conference in Berlin today, according to a text provided by the Frankfurt-based ECB. “We are carefully monitoring the situation and we stand ready to do whatever is necessary to fulfill our mandate.” The ECB raised its benchmark interest rate to 1.25 percent last month after keeping it at a record low of 1 percent for almost two years. Euribor futures fell today, with the implied yield on the December contract rising two basis points, or 0.02 percentage point, to 1.91 percent as investors increased wagers on further rate increases. The Federal Reserve’s target rate is between zero and 0.25 percent. Investors from Asia bought 16 percent of the 4.75 billion euros of five-year notes sold yesterday to help fund Portugal’s bailout, the European Commission said. Urged to Diversify Asian investors, including the Chinese government, may make up a “strong proportion” of Portuguese bailout bond buyers, the Financial Times cited Regling as saying to reporters yesterday. China was “clearly interested,” Regling said, according to the paper. China is the world’s biggest holder of foreign-exchange reserves and the largest overseas investor in U.S. debt, with holdings of $1.145 trillion, according to Treasury data released this month. Officials including People’s Bank of China adviser Li Daokui have urged diversification of the nation’s currency reserves away from the U.S. The euro has lost 3.8 percent this month versus the yen as European policy makers struggle to find a resolution to Greece’s deficit woes. Greek debt maturities could be extended on a voluntary basis, European Union Economic and Monetary Affairs Commissioner Olli Rehn told the French newspaper Les Echos in an interview published yesterday. Capital Spending Restructuring Greek debt “must not be the solution,” ECB Executive Board Member Juergen Stark said in a speech in Berlin yesterday. Leaders should “please consider the consequences” of a restructuring, he said. “China’s interest is definitely a short-term positive,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. “The longer-term issue of a restructuring of some sort for Greece remains in the background and may be an obstacle to a longer-term rally in the euro.” The euro dropped 1.8 percent over the past month, according to Bloomberg Correlation-Weighted Currency Indexes, which track 10 developed-nation currencies. The franc climbed 2.6 percent, the greenback gained 1.8 percent and the yen rose 1.5 percent. The Swedish krona gained for a third day against its U.S. counterpart, strengthening by 0.7 percent to 6.2866 per dollar. It was 0.1 percent stronger at 8.9108 against the euro. An index measuring consumer confidence rose to 17.9 in May from 17.6 a month earlier, the Swedish National Institute of Economic Research said today. Economists surveyed by Bloomberg had expected 17.3, according to the median of 16 estimates. A separate gauge measuring manufacturing confidence rose to 11 from 8 in April. Aussie Rises Australia’s dollar climbed after a report showed business investment increased more than economists forecast in the first quarter. Capital spending climbed 3.4 percent in the three months to March 31 from the fourth quarter, when it gained a revised 1.5 percent, the government statistics agency said today. The median forecast in a Bloomberg News survey of economists was for a 2.7 percent increase. “Today’s stronger-than-expected capex data is very much the reason for the higher Aussie dollar bias,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. “The outlook is very bullish and I suspect that’s why the Aussie dollar continues to push higher on the back of that data. It’s a bit of a ‘risk-on’ day.” The Australian dollar gained 0.5 percent to $1.0580 and advanced to 86.54 yen, from 86.33 yen yesterday. To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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